Economic Developments and Outlook December 2022

The year 2022 that is now drawing to a close has been a year of two halves. In the first half, the
economy was still running at full steam, with the result that full-year growth amounts to 4.2%.
The second half saw GDP growth turn into a slight contraction due to high inflation and lower world
trade growth. The economy is set to stabilise in 2023, with GDP growth of 0.8%. Growth will then pick
up again, buoyed by temporary government policies to provide income compensation for high energy
prices. In 2024, the economy is expected to grow at the potential rate of 1.6%.

Inflation is expected to have peaked in 2022. Price increases are likely to be less dramatic in the years
ahead, given the anticipated energy prices and government measures. Inflation is projected to average
11.5% this year, mainly due to the exceptionally high rise in energy prices over the past year. It will then
fall to 4.9% in 2023 and 5.0% in 2024, the year in which the government-imposed energy price cap
ends. Core inflation will also remain high as a result of high energy inflation feeding through to the
prices of other goods and services, the tight labour market and the economy’s high capacity utilisation
rate.

The labour market will remain extremely tight throughout the projection period. Employment growth
will fall below labour supply growth next year, causing projected unemployment to rise from 3.6% this
year to 4.2% in 2023, before edging lower to 4.0% in 2024. This tightness and high inflation are driving
wage rises higher. The increase in negotiated wages in the corporate sector is expected to accelerate
from 2.9% this year to 5.0% in 2023 and 4.2% in 2024. The labour income share (LIS) declines throughout

the projection period, from 78.4% in 2021 to 74.8% in 2024 (corporate sector).
The housing market is cooling down. As a result of rising interest rates and lower confidence, the
hitherto very strong rise in prices (14% this year) will level off rapidly with a fall of over 3% in the next
two years. Rising mortgage rates are an important transmission channel for monetary policy
tightening for the Netherlands. This means that house prices will fall, along with spending and
inflation.

The COVID-19 crisis did not derail the public finances. The government’s measures to support purchasing
power amid high energy prices will push the budget deficit to 3.0% of GDP in 2023. The debt-to-GDP
ratio will fall to just below 50% of GDP next year and decline further to 47.7% of GDP in 2024. This is
mainly due to the denominator effect of high inflation.
These projections are subject to a high level of uncertainty, involving financial stability risks, for
example.

Energy and food prices may also remain high for an extended period. In such a scenario, with
world trade growth also slowing, GDP growth in 2023 and 2024 would be on average 0.8 percentage
points lower than projected. In addition, inflation would rise above 9% in 2024, around 4.5 percentage
points higher than in our projections. In a variant including a one-year extension to the energy price
cap, household purchasing power is supported for longer, but the budget deficit worsens