Rabobank: Faltering global economy now also spreads to the Netherlands

The declining growth of the global economy is now spreading to the Netherlands as well. This year, the Dutch economy is still expected to grow by 1¾ per cent, followed by a slight slowdown next year to 1½ per cent. This is mainly due to the imminent effects of a possible upcoming Brexit and slower growth in China and the US. More than in previous years, the Dutch economy will have to stand on its own two feet. This is the message from the Rabobank economists in their Economic Quarterly Report published today.

The slower growth forecast for both the United Kingdom and the US will have a relatively significant effect on the Dutch export sector. Hans Stegeman, Chief Economist for the Netherlands at Rabobank: “The United Kingdom and the United States are among our major trading partners, so this is important. After growth in export volume of 5 per cent in 2015, export growth will fall to only 2¾ per cent in 2016 and 2017. The fact that the euro is now quite a bit higher than in previous years, especially against the pound, is not particularly helpful either.”
According to the Rabobank economist, the developments in the domestic economy by comparison are still looking good. “This year both private consumption and private investments significantly contribute to growth. Private consumption will probably grow a little faster next year. The current low level of inflation is good for our purchasing power.”
Low inflation is beneficial to consumers in the short term, but it does not bode well for the economy. Stegeman: “A low level of inflation over a long period suggests that the Dutch economy and the eurozone economy as a whole still have structural problems to address. Continuing high levels of household debt and a relatively low level of business investment are not helping the economy to make lasting progress. For this year, we expect average inflation of zero per cent, with a slight rise to 1 per cent in 2017. Although we are not forecasting a scenario of deflation, inflation will remain low and well below the European Central Bank’s target rate of 2 per cent.
Unemployment falls further
One positive development is that unemployment in the Netherlands will continue to fall, albeit at a slower rate next year than this year. Stegeman: “We expect the increase in employment to be slightly lower next year, in line with the more limited economic growth in 2017. We also think that labour supply will increase as people see more job opportunities in the labour market. Both these effects will moderate the fall in unemployment, which will probably come to a standstill in the course of 2017. Further recovery in the labour market is sorely needed, especially for the group of long-term unemployed. There has been a sharp increase in the number of this group since the crisis. Older working people, those aged between 45 and 75 years, have had a particularly difficult time since the crisis. While the number of long-term unemployed aged between 25 and 45 has fallen sharply in the past two years, the group aged between 45 and 75 remains stuck at a much higher level than it was before the crisis. This was to some extent due to policy measures, such as the increase in the age of entitlement to state retirement pension (AOW).”
Global growth is barely adequate
At around 3 per cent, the rate of global economic growth is barely adequate. Stegeman: “Any surprises are more likely to be negative rather than positive. This is due among other things to geopolitical tensions around the South China Sea, the upcoming US presidential elections, unrest in the Middle East, uncertainty concerning the Brexit process, the refugee crisis in Europe and growing doubts around the world regarding the effectiveness of the present (unconventional) monetary policy without a clear exit strategy. At the same time, there is little reason to assume that in the near future policymakers are prepared to take control in order to boost economic growth and address these risks. The upcoming elections, most notably in the US and several countries in the eurozone, mean that emergence of an effective policy is less likely.”
The Quarterly Economic Report is available to read and download at: www.rabobank.com/economics  

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