Economic Developments and Outlook, December 2013

Press release
Date 9 December 2013

DNB: Economy turns for the better
The Dutch economy is taking a turn for the better. Increasing consumer and producer confidence indicate a reversal in the economic cycle. The tentative recovery reveals itself in modest economic growth in 2014, after a 1% contraction this year. Growth is expected to pick up to approximately 1% in 2015, the year in which employment will also expand slightly for the first time since 2011. In addition, real disposable income is expected to increase significantly in 2015, after seven years of contraction. This is shown by DNB’s new half-yearly forecast published today.

Following a period of more than two years in which GDP declined almost unremittingly, the economy appears to have found the way up since the summer. The recovery was long in coming and will remain modest in size in the years ahead. The outlook for both economic growth and public finance may work out considerably more favourably if the proposed decommissioning of standing right companies and rationalisation of the rules on tax relief for pension contributions (the Witteveen framework) give rise to further expenditure.
The modest economic recovery estimate is mainly attributable to the fact that households, banks, pension funds and the government give priority to further strengthening their financial positions. This process, which acts as a brake on domestic expenditure, is ongoing but its impact will gradually decline during the forecast period. Combined with firming international economic development, which is good for exports, the Dutch economy is expected to grow 0.5% in 2014 and nearly 1.0% in 2015.
Moderate and gradual recovery of the Dutch economy from mid-2013 is in line with the picture that emerged from the forecast six months ago. Since then, international economic conditions have deteriorated slightly and the Dutch government has taken additional austerity measures. On the upside, in recent months consumer and producer confidence increased substantially, inflation declined more rapidly than anticipated and the housing market showed a more favourable picture.
The economic slump of recent times is making itself felt in the labour market. Headcount employment is expected to contract by 1.1% in 2013, which has meanwhile caused a sharp increase in unemployment. Expectations are that the unemployment rate will stabilise at around 7.4% of the labour force in the course of next year. In 2015 employment will – for the first time since 2011 – expand, by 0.2%. Households’ purchasing power will also increase in that year; their real disposable income will grow 2.5%, the first increase in seven years’ time.
In October 2013, inflation dropped below 2% for the first time since March 2011. The estimated inflation rate of 1% for 2014 and 2015 is markedly lower than in the past three years. This lower inflation, which has a beneficial effect on households’ purchasing power, is appropriate to an economy that is still producing considerably below the generally feasible level. The consolidation measures taken by the central government have helped reduce its budget deficit this year. Further improvement of public finance will depend on the practical implementation of proposed policies, in particular the rationalisation of the Witteveen framework.
For more information, please contact Ben Feiertag (020-5242304 or 06-52496142)