Rabobank Outlook 2015: Time for a stimulative policy and tax reform

The Dutch economy will grow by 1½% in 2015, twice as fast as in 2014. Unemployment is falling, disposable household income is rising for the second year in a row and the recovery in the housing market is continuing. Economic growth in 2015 will thus be slightly less dependent on exports, and in addition to business investment, private consumption and investment in housing will finally pick up again. This will be in a context of reasonable, but far from spectacular global economic growth. The Cabinet has an excellent opportunity to strengthen the Dutch economy further by reforming the tax system. This is the message from the Rabobank economists in their Outlook 2015 published today.

Wim Boonstra, chief economist at Rabobank: “There is broad political support for simplification of the system of allowances and reducing taxation on employment. Reducing taxation on employment, both employers’ contributions and tax on the wages of employees, can strengthen the policies already in place for increasing the potential labour force. This can be achieved within a responsible budgetary policy.”

The policy challenges further from home are also serious. Boonstra: “Certain important trends that put downward pressure on potential growth require a robust approach and will not permit policymakers to rest on their laurels. For instance, there is the high level of youth unemployment in Europe that is crying out for a policy agenda to achieve economic growth. Germany and France are lagging behind in their support for growth, and this forms a significant risk for the Netherlands and Europe. The design flaws in the EMU have also still not been fully addressed, although the banking union represents good progress on the way to the necessary further European integration.”

outlook-2015-infographic

Click the image to see the full infographic.

Also in the Outlook 2015:

  • The Rabobank economists expect a modest recovery for the eurozone.
  • Growth in the United States and the United Kingdom will remain relatively robust.
  • Economic growth in the emerging world will be mixed.
  • The risk of deflation in the eurozone is greater than many people realise.
  • Growth in the eurozone has to be encouraged by a combination of a stimulative budgetary policy and an accommodative monetary policy. 
  • A one-sided fixation on budgetary austerity is standing in the way of a real return to growth in the eurozone.
  • A more flexible labour market, investment in good education and a programme of lifelong learning are needed to prepare us for the future.
  • The ECB is coming under increasing pressure to take additional measures; resorting to a large-scale increase in the balance sheet through the purchase of government bonds is almost inevitable.
  • The Fed’s first interest-rate hike will not be before the end of 2015 at the earliest.
  • Money and capital market interest rates in Europe will therefore remain low in 2015.

For a full list of all the publications, videos and infographics in the Outlook 2015, go to: www.rabobank.com/outlook