Stable growth outlook for Dutch economy amid global economic uncertainty

Economic growth has returned to the Netherlands after years of crisis, recession and stagnation. The Dutch economy is forecast to grow by 2½% in 2016, after projected growth of 2% in 2015. This growth is broad-based, as private consumption and private investment are also making a contribution in addition to exports. High unemployment remains an issue, however, and export growth is surrounded by uncertainties. The global economy is continuing to grow at a reasonable pace, but it is not really taking off unaided. This is the message from the Rabobank economists in their Outlook for 2016, published today.

Next year, almost all business sectors in the Netherlands will benefit from the increased demand for their goods and services due to the return of growth in domestic expenditure. “But it should be said that many sectors are still mainly experiencing catch-up growth to compensate for the losses since the crisis. In addition, growth is not enough as yet to bring unemployment back down to an acceptable level next year,” explains Rabobank economist Tim Legierse. “We are, however, seeing a positive interaction in the Netherlands between the economy and the housing market and between the economy and public finances. Thus the large numbers of home sales are leading to more consumer durables for homes being sold and an increased demand for the services of estate agents and civil-law notaries. The construction sector is also clearly doing better. As regards public finances, increased growth has now led to sufficient improvement in the budget deficit to enable a reduction in taxation in 2016. In part because of that, economic growth will be sustained next year.”
 
Global economy will not grow of its own accord
The growth in Dutch exports is being helped by the sustained growth in the eurozone, but there is little movement in global economic growth. Rabobank-economist Allard Bruinshoofd: “Looking at the broad picture, we see slower growth in China, lower commodity prices and the expected increase in US interest rates all putting pressure on growth rates in emerging countries. In addition, while we are being forced to stick to an extremely expansionary monetary policy, there are increasing signs that in the longer term it will have side effects that dampen growth and that it leads to a risk of new crises. It would be good to see globally coordinated monetary measures (in a repeat of the end of 2008), this time focused on the normalisation of monetary policy. But there is a need in the eurozone too for action to tackle the root causes of such structural economic challenges as weak investment, low productivity growth and the debt problems. More decisive leadership is essential and could eventually counteract the anti-Europe sentiment. Having policymakers muddle through is disastrous from that point of view.”
 
Financial markets react strongly to vulnerabilities in emerging economies
“Unresolved structural problems such as high levels of debt, weak economic expansion in a number of emerging markets and the associated low commodity prices remain a source of uncertainty for the currency markets,” says Rabobank economist Elwin de Groot. “We expect that China will let its currency float more freely in 2016, which will involve a depreciation that could be substantial. In more general terms, we expect a stronger dollar. This is partly because economic recovery has progressed so far in the US that the Fed will be able to raise its policy rate before the end of this year. We also expect further interest rate increases in 2016, although the pace of these increases is likely to be much slower than in the past. The ECB, on the other hand, cannot afford the risk of a stronger euro. That is why we expect the ECB to come up with new expansionist policy measures as early as December, including a further reduction in the deposit rate. The more debt instruments the ECB buys, the scarcer these securities become. That puts downward pressure on interest rates and risk premiums. But because we are predicting improvements to economic prospects and an increase in inflation and inflation expectations, we also expect European capital market rates to increase slightly in the course of 2016.” 
 
 
The Outlook for 2016 is available at www.rabobank.com/economics

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