Economic Developments and Outlook June 2023

The Dutch economy is returning to a slower pace of growth. Gross domestic product (GDP) is expected to grow by 0.8% in 2023, after the solid 4.5% growth in 2022. Higher energy prices and their pass-through to almost all other prices are putting a drag on household purchasing power and spending. Central banks worldwide have also been forced to tighten their policies further. Higher interest rates are cooling the housing market and weighing on investment. The cooling of the international economy is also reducing Dutch exports. After running above capacity for several years, the economy is consequently developing in a more balanced way, with growth projected at 1.3% in 2024 and 1.1% in 2025.

The unemployment rate is projected to rise slightly, reaching the still very low level of 3.8% in 2025. Projected wage growth is set to peak at 5.7% in 2023 but to remain high thereafter. At 5.4% in 2024 and 3.7% in 2025, projected wage growth is sharply higher than the 1.9% average over the past decade. Higher wage costs are impacting the prices of Dutch exports, which are projected to become less competitive and lag behind the growth in global trade.

Inflation is set to fall from 4.2% in 2023 to 3.7% in 2024 and 2.5% in 2025. Price rises are proving more persistent than previously expected. Core inflation is expected to rise to 6.8% in 2023, exceeding HICP inflation. The cooling of the economy will contribute to downward pressure on core inflation in the years ahead. There is nevertheless a risk that core inflation will prove more persistent than currently projected. We have therefore produced an alternative scenario simulating the economic effects of a longer period of high core inflation.