Dutch economic outlook brighter than previously foreseen

Dutch economic outlook brighter than previously foreseen

The Dutch economy has shifted into higher gear. On the back of a pick-up in domestic demand, the Dutch economy is to gain steam in 2015, with growth projected at 2%. This is the highest growth figure recorded since 2008. The Dutch economy should, on average, maintain this growth pace in 2016 and 2017. This means that economic activity will develop more favourably than previously foreseen. In line with the more upbeat outlook, unemployment will fall, government finances will improve and inflation will edge up. This is indicated by the new half-yearly forecast that De Nederlandsche Bank (DNB) published this week.

Driven by a strong increase in real disposable income and improved sentiment, private consumption will show a significant increase (2.0%) this year, for the first time since the credit crisis broke out. Consumption growth will also hold up in 2016 (2.3%) and 2017 (2.0%). Investments will likewise show recovery, notably residential investment, clearly reflecting the turnaround seen in the housing market. Corporate investment will also show strong recovery, with average annual growth projected at 5.3%. This will take the investment ratio, which expresses investments as a percentage of gross domestic product, to a relatively high level in 2017.
Exports continue to be main driver of growth
Although domestic spending will again contribute to economic growth during the projection horizon – a development unseen since 2011 – exports will remain the main driver of growth. The international environment will improve further, as evidenced by a pick-up in world trade growth and the low level of oil prices. The depreciation of the euro also contributes to this.
Lending to rebound

Housing market important for domestic recovery
According to the forecast, the recovery in the housing market has taken hold. Improved affordability, favourable economic prospects and surging consumer confidence have all driven recovery in the housing market. The turnaround in the number of housing transactions has had a knock-on effect on average house prices with the usual time lag of around three quarters. Selling prices have increased since the second quarter of 2014, and increases will gradually reach an average of 4% by 2017.

Dutch economy to top the level seen during the credit crisis
By year-end 2015, Dutch gross domestic product (GDP) will for the first time top the real level seen in 2008 . Furthermore, economic growth should outstrip the potential growth rate, which is forecast at 1.25% per annum. This will improve capacity utilisation, which will help drive up inflation over the next few years, from 0.2% this year to 1.2% and 1.4% in 2016 and 2017, respectively. Unemployment should decline, from 7.4% in 2014 to 7.0% this year. The rates foreseen for 2016 and 2017 are 6.9% and 6.7%, respectively. Unemployment will fall only moderately, as the pick-up in job creation will go hand in hand with growing labour supply. This will also weigh down on the increase in negotiated wages, which should amount to 1.6% per annum during the projection horizon. Government finances are set to benefit from the economic upswing. The deficit will drop from 1.6% of GDP this year to 0.6% of GDP in 2017. Over the same period, government debt should contract from 68.9% of GDP to 64.9% of GDP.

Pin It on Pinterest