Press release: Economic growth to slow down

Press release
Date 11 June 2019

The pace of economic growth in the Netherlands is set to slow down amid a persistently tight labour market. Following growth of 3.0% in 2017 and 2.6% in 2018, growth in the Dutch gross domestic product (GDP) is projected at 1.6% for 2019. In 2020 and 2021, growth should be close to potential, at 1.5% and 1.4% respectively. Unemployment is set to remain at a historic low of 3.3% throughout 2019, 2020 and 2021. This is evident from the new half-yearly forecasts in the Economic Developments and Outlook, which De Nederlandsche Bank (DNB) published today.

The lower growth rates are largely attributable to international economic developments, which will act as a drag on Dutch export growth. In addition, consumer confidence has fallen over the course of 2018. The cooling of the Dutch housing market is also restraining growth, and businesses are expected to scale back investment in 2020 and 2021. By contrast, the government will boost spending, especially in the form of investment. All in all, economic growth will therefore largely rely on public expenditure and private consumption in the coming years, as can be seen from the figure below.

Sources of GDP growth

Wage and price growth should accelerate

Households will continue to benefit from tight labour market conditions. Recent years have seen incomes rise primarily on the back of rapid growth in the number of jobs.In the years ahead, further increases are expected, driven by low unemployment and higher inflation. Compensation per employee in the private sector should rise by 2.8% in 2019, 3.7% in 2020 and 3.8% in 2021. Inflation (HICP) should reach 2.5% in 2019. Higher VAT and energy tax rates will have a strong impact on price levels this year. Inflation is projected to fall to 1.6% in 2020 and rebound to 2.1% in 2021, fuelled mainly by rising labour costs.

Tightness to persist in the labour market

Employment growth in 2019 should be a robust 1.9% but is expected to soften to 0.2% by 2021. Over the past few years the unemployment rate has gradually fallen, from 7.4% in 2014, to 3.8% in 2018. Set to decline further, to an average 3.3% of the labour force in 2019, it will contribute to very tight conditions in the labour market. In the past four decades, only 2001 witnessed similar labour market tension – in all other years unemployment was higher. In 2020 and 2021, unemployment is set to remain at the low level of 3.3%.

Ramifications of more abrupt downturn in the housing market

An alternative scenario in the Economic Developments and Outlook looks at what would happen if the housing market were to cool rapidly, with house price rises virtually stagnating after two years. In this scenario, reduced confidence and lower housing investment, private consumption and business investment depress GDP growth by 0.3 percentage point in both 2020 and 2021. The upshot of this scenario is that the Netherlands would have economic growth virtually unscathed if the housing market were to cool down more strongly than anticipated.

For more information, please contact Bouke Bergsma on +31 20 524 3797 or +31 6 52496142.