Russia's military aggression against Ukraine and rising energy prices hinder the development of the Dutch economy. If last year one could observe a successful recovery after the corona crisis and a rapid recovery, then this year the average annual positive dynamics can be achieved only thanks to the growth in January-February. In general, analysts predict GDP growth in 2022 at the level of 2,8%.
Inflation
According to the forecasts of De Nederlandsche Bank (Central Bank of the Netherlands, DNB), inflation this year will be an unprecedented 8,7% due to expensive energy resources, rising prices for food, many goods and services. Inflation is expected to continue in the future: up to 3,9% in 2023 and 2,4% in 2024. High inflation reduces real household incomes and the purchasing power of the Dutch.
At the same time, sharp increases in energy and food prices affect households in different ways. Low-income households are particularly vulnerable: they spend a relatively large portion of their income on energy and often lack a financial cushion, which can lead to poverty. “In any case, we are all getting poorer together because of high inflation,” says DNB director Olaf Sleijpen.
Gross domestic product (GDP) and Dutch inflation
(ramingen - forecast)
Threat of a recession
In view of the uncertainty associated with the duration and course of the war in Ukraine, DNB has also developed an alternative economic scenario. In it, the economic consequences of the war will be even more severe, with more uncertainty, higher energy and food prices, and a larger downturn in world trade.
If the supply of Russian oil and gas is completely cut off, it will affect everyone. In this case, economic growth will continue to decline, and in 2023 the economy will go into recession (recession), and inflation will rise to 10,8%.
Compensation measures
According to DNB forecasts, the government cannot prevent the loss of income due to higher energy prices, but compensatory measures should be directed to the population groups that are most affected and most in need of purchasing power support. The reduction in excise taxes on gasoline and diesel fuel is not exactly aimed at the poor, because they do not always have a car. Thus, this measure does not compensate for the impact of inflation and price increases on vulnerable segments of the population, as well as other measures already taken (such as lowering the energy tax).
The labor market will continue to experience widespread labor shortages for some time to come. The combination of talent shortages and high inflation is pushing up wages, with DNB expecting an average increase in company wages of 3% this year and 4% in 2023 and 2024.
Wage increases can offset some of the effects of high inflation on workers. However, Olaf Sleipen warns: "It is unreasonable for wages to jump and rise as fast as inflation."
Publication Date: 24.06.2022
