The Dutch economy will grow by only 0.8 percent next year. Inflation will remain high in 2023 and 2024, at around 5 percent. That is what De Nederlandsche Bank (DNB) predicts in the Economic Developments and Outlook (EV) published on Monday.
This makes DNB more pessimistic than the Central Planning Bureau in its last estimate in September. The CPB assumed economic growth of 1.5 percent and inflation of 2.6 percent for next year.
According to the central bank, the Dutch economy has been running “at full speed” this year, recovering from the corona crisis. As a result, economic growth this year will amount to 4.2 percent, mainly achieved in the second quarter. Since the middle of this year, the economy has cooled, so that there is now a slight contraction. In the course of next year there will be growth again, as a result of which gross domestic product will increase by approximately 0.8 percent on an annual basis, the central bank predicts. After 2023, the economy will continue to recover, and growth of 1.6 percent is forecast for 2024.
Peak inflation almost over
Inflation is expected to peak this year, with prices rising by an average of 11.5 percent. If energy prices do not rise further and announced government measures – such as the energy ceiling – go ahead, inflation will be less high in the coming years. At 4.9 percent in 2023 and 5.0 percent in 2024, that inflation is still well above the target of the European Central Bank (ECB), to which DNB supplies the Dutch inflation data.
The ECB aims for inflation in the eurozone of just under 2 percent. Last week, the ECB decided to raise interest rates again to cool the economy and bring inflation down. The Executive Board of the ECB, where President Klaas Knot votes on behalf of DNB, also decided to raise interest rates further in the coming meetings.
DNB has calculated another alternative scenario, for when energy prices remain high for longer and world trade grows less rapidly, partly as a result. In that case, the Dutch economy will grow 0.8 percentage point less than estimated in 2023 and 2024. Inflation will then also remain much higher, above 9 percent.
DNB is an important economic adviser to the Dutch government. In the EOV she makes a number of recommendations to Minister of Finance Sigrid Kaag (D66). For example, the central bank is against long-term compensation of energy costs. “Aim the compensatory policy only at households that run into financial problems without income support,” writes DNB. “With untargeted, broad support, it becomes more difficult to curb inflation.”
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More government control
The Dutch government should also limit support to energy-intensive companies. That support quickly becomes very expensive if energy prices remain high. Moreover, it keeps non-viable companies alive, while in a tight labor market their employees could find useful work elsewhere.
In order to reduce energy costs, the Dutch government should take even more control when it comes to sustainability and energy saving. Olaf Sleijpen, director of financial stability at DNB: “The government has already arranged a lot to finance sustainability. But the point is that you have to agree more from above on how you are going to do that.” Sleijpen believes that precisely because the labor market is so tight, resources should now be focused on homes with a poor energy label. “Homes with a good energy label, leave them for a while. You have to take a very focused look at which homes should be the first to become energy efficient. The people who have to do that work also have to come from somewhere and we have to deploy and utilize them as optimally as possible. 2023 must be the year of sustainability. This requires more central direction.”
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