Dutch economic recovery remains fragile, purchasing power is increasing

Dutch economic recovery remains fragile, purchasing power is increasing

CPB Netherlands Bureau for Economic Policy Analysis today published its Macro Economic Outlook 2015. The Dutch economy is projected to grow, both this year and the next, by ¾% and 1¼%, respectively. Purchasing power will increase this year by 1½% and next year by ½%.

The small increases in economic growth projected for 2015 are partly due to increased household consumption and a rise in business investments. However, as in previous years, export is expected to be the largest contributor to GDP growth in 2015. For next year, a modest increase in employment is projected with a slight decrease in unemployment, down to 6¾%. Inflation will remain low with 1% this year and 1¼% next year. The government deficit in 2014 will come to 2.6% and will decline next year to 2.2% of GDP. This decline is mostly due to deficit-reducing measures implemented in health care and public administration. Government debt, however, is expected to increase further, to 70.2% of GDP by 2015.

An increase in median purchasing power (1½%) is projected, following four years of decline. Next year, median household purchasing power will improve by ½%. To aid interpretation of the traditional ‘scatter diagrams’ showing purchasing power, CPB introduces three lines in the six illustrations it normally provides. The centre line represents median purchasing power per income level, and an upper and lower line represent the upper and lower limits of the purchasing power of 90% of households at a certain income level.

The main negative uncertainties concern foreign countries. Geopolitical tensions in various places around the world pose a risk to the global economy. A further escalation of the Ukrainian conflict could cause Dutch GDP growth to be ¼% to ½% lower. The current projections have assumed that further escalation is not to be the case and that relevant world trade will come out at 2½% this year and 4½% the next.

The Macro Economic Outlook 2015 also pays attention to abolishing the system of the so-called average pension premium. This would make the pension system more efficient and better equipped to deal with a changing labour market. The costs of such a transition are put in perspective and are shown to be certainly no greater than those of the past abolition of the Dutch early retirement scheme (VUT).

Pin It on Pinterest