The economy continues to surprise positively. Once again, the economists of the Central Planning Bureau (CPB) stated on Friday their expectations positive for growth, unemployment and purchasing power. For example, the economy will grow by 3.8 percent this year, the CPB estimates. And not by 3.2 percent, as the CPB expected in June, or by more than 2 percent, as estimated by the CPB in March.
The labor market in particular is doing surprisingly well. “The labor market figures are actually fantastic,” says CPB director Pieter Hasekamp. Unemployment is particularly low for an economy emerging from a contraction. And in various sectors, such as healthcare and the catering industry, the demand for personnel is once again high. There were even more vacancies than unemployed in the second quarter of this year, reported the Central Bureau of Statistics this week.
Unemployment will still rise somewhat, the CPB thinks, for example if emergency support to companies stops on 1 October, as the outgoing cabinet has announced. But there will be far fewer unemployed than the CPB thought in June: next year 3.6 percent of the working population will be unemployed, the CPB estimates now, and not 4.1 percent as the economists expected in June.
Also read: Will the staff shortage continue to be so great?
This is a special crisis, says Hasekamp. The emergency support for companies was particularly unique: subsidies to pay the wages of their staff and their fixed costs (such as rent). “Because the blow came from outside, and it was clear that the economy in itself was relatively healthy, the government has acted decisively in supporting companies. That has supported resilience.”
The estimates of the CPB have one major uncertainty: the course of the corona pandemic. “If, in the unlikely event, large-scale restrictions in economic traffic become necessary again, this will directly affect economic development,” writes the CPB. The economists assume in this estimate that there will be no new restrictions due to the corona virus.
If there are new restrictions, or even a lockdown, the CPB advises the cabinet to stop the emergency support anyway. Hasekamp: “Don’t give generic support, and be very careful with support for specific sectors.” Because, the CPB argues, that hinders economic dynamics. Now there are companies that are screaming for staff while people with NOW wage subsidies are still at home. In addition, the economy must adapt as new constraints emerge. Hasekamp: “The moment you have structurally ended up in a different world, in which you have to live with corona, no matter how annoying, adjustments will also have to be made in the sectoral structure of the Dutch economy.” The government could help viable companies that built up high debts during the corona crisis, or people to find new work, according to the CPB. In the spring, the CPB also recommended that support be phased out this summer, but the cabinet and the House of Representatives will continue to provide full support in the months of July, August and September. Outgoing Finance Minister Wopke Hoekstra joined the CPB on Friday. He called it logical to the NOS not to continue with the support if the economy is doing very well.
Fix purchasing power
Normally, after the CPB’s ‘August estimate’, negotiations start in the cabinet about next year’s budget, which will be presented in the Budget Memorandum on Budget Day. Unfavorable purchasing power estimates from the CPB often try to repair cabinets, for example by tinkering with taxes. The question is how many new interventions the current caretaker cabinet will make in the coming weeks, especially now that the formation of a new cabinet has still not started.
“Normally, a caretaker cabinet is cautious about entering into expenditure or tax cuts that structurally burden the budget,” says Hasekamp. Incidentally, the current caretaker cabinet of VVD, CDA, D66 and ChristenUnie has already decided on major extra expenditure, with the support of the House of Representatives. For example, Rutte III spent billions of euros extra on a new support package for companies, self-employed people and employees, and on solving corona backlogs in education.
If there are new restrictions, or even a lockdown, the CPB advises the cabinet to stop the emergency support
The purchasing power that the CPB now foresees for next year, with all the struggles that go with it, is remarkably evenly distributed. On average, purchasing power growth will be zero next year for virtually all groups (workers, retirees, benefit recipients). For single earners there is a minus of 0.3 percent in the average purchasing power.
CPB director Hasekamp calls it a political question whether it is necessary to repair purchasing power. Hasekamp: „If you look at the economy, it is not necessary. In a booming economy, you don’t have to boost demand through tax cuts.”
The purchasing power charts of the CPB also have all kinds of limitations. For example, the median purchasing power is concerned: half of the households benefit less, the other half more. The estimate is uncertain, because it depends on what happens to wages, inflation and the health insurance premium. Moreover, it is about static purchasing power: the CPB is based on people for whom everything remains the same. They do not retire, remain unemployed, do not lose a job – often these are the very events that have a major impact on the purchasing power of households.
For the political parties that are going to negotiate a new cabinet, the economic prospects are a boost. Public debt has risen sharply during the corona crisis (about 80 billion euros) due to substantial government spending, but remains below the European standard of 60 percent of GDP (the size of the economy). Without interventions, the relative government debt will fall again next year: due to the high growth and the low interest rates paid by the Dutch government, the debt relative to GDP will shrink to 56 percent in 2022. That gives a new cabinet financial leeway. However, the question is whether this space is also available economically due to the tight labor market. There are also many vacancies in construction, for example. This can be a problem for political plans such as building houses or constructing infrastructure.
A version of this article also appeared in NRC Handelsblad of 21 August 2021
A version of this article also appeared in NRC in the morning of August 21, 2021