Dutch economic growth expected to slow

The Dutch economy is expected to grow by 3.3 per cent this year and only by 1.6 per cent in 2023, the European Commission reported on Monday, marking a substantial decline from last year's 5 per cent growth.

"While growth momentum carried over from 2021 provided a strong starting point for 2022, the deterioration of households' real disposable income due to strong price pressures and the uncertainty created by the war in Ukraine are expected to subdue further economic expansion," the EU said in a report on the Dutch economy, included in the Spring 2022 Economic Forecast, a comprehensive set of economic forecasts for the EU and the bloc's 27 member states.

For the whole of the EU, the commission is lowering its forecast for 2022 to 2.7 per cent from the 4 per cent in the winter forecast last February, as the conflict in Ukraine is "weighing on Europe's economic recovery", said Paolo Gentiloni, Commissioner for Economy, presenting the commission's forecasts earlier on

Monday.

In the Netherlands, early 2022 economic sentiment indicators remained strong, despite the strict Covid-related restrictions that were still in place in December and January. However, the commission reported, the conflict between Russia and Ukraine has increased uncertainty, causing consumer confidence to drop sharply. Moreover, further increasing commodity prices came on top of the already high inflation related to supply chain pressure.

"Inflation is expected to erode households' purchasing power," the report said.

Business investment is also likely to be adversely affected during the remainder of 2022 as firms are coping with the increased uncertainty, labour shortages and persistent supply chain bottlenecks.

Tight labour market, partly due to a strong rebound in economic activity last year, is expected to negatively affect growth.

The unemployment rate is expected to reach 4 per cent in 2022, down from 4.2 per cent in 2021, but it will pick up again to 4.2 per cent next year. However, rapid price growth in 2022 is expected to outpace wage growth, leading to a decline in real wages.

Surging inflation is also expected to have a negative impact on growth.

"Gas and oil price increases are affecting inflation in the Netherlands particularly strongly due to their high share in the Dutch energy mix," reported the European Commission.

In the Netherlands, annual inflation in 2022 is forecast at 7.4 per cent, but expected to strongly decline to 2.7 per cent in 2023 as "energy prices are expected to show a moderate decline."

On the fiscal side, in 2022 the deficit is forecast to increase to 2.7 per cent of GDP from 2.5 per cent last year, driven by the government's additional spending plans related to the green transition, excessive nitrogen depositions, education and housing supply, but also because of additional tax cuts the government plans to alleviate the impact of surging energy prices on households and companies.