The growth of the Dutch economy will slow down significantly this year. ABN AMRO is adjusting its growth forecasts for the remainder of the year downwards from 1.2% to 0.7%. Despite the first-quarter contraction, economists don’t expect the bank to face a severe recession.
The Dutch economy has continued to grow well over the past two years, but in the first quarter of this year the economy contracted by 0.7%. This raises the possibility of a “technical recession,” says ABN AMRO senior economist Jan-Paul van de Kerde. That is, two consecutive quarters of contraction. “The step to another quarter of contraction is closer, especially in these turbulent times.”
resilience
But according to Van de Kerde, that doesn’t mean that the Dutch economy is suddenly in very bad shape. In fact, he thinks the cooling of the economy is actually welcome. Furthermore, ABN economists do not expect the Netherlands to end up in a deep recession.
“This is because we have a very resilient labor market that supports household spending,” says Van de Kerde. ‘Corporate balance sheets and financial positions of households are also in reasonably good shape. You can have some fun with that.’
However, the risks have increased. According to Van de Kerde, already in the first quarter it was clear how the recession in Germany had also affected the Dutch economy. “We are an export-oriented economy,” he explains. ‘World trade is cooling down and we also expect recessions in the Eurozone and the US. So we have really entered a phase of lower growth, with greater risks of recession.’
Cooling down
For the remainder of the year, ABN AMRO revised its growth forecast downwards from 1.2% to 0.7%. The necessary cooling of the economy should, among other things, guarantee the interest rate increases that the ECB implemented in the second half of last year.
The effects of this will have a somewhat lagged effect on the economy, according to Van de Kerde. ‘According to DNB director Klaas Knot, it will take around five quarters for the ECB’s interest rate hikes to ‘settle down’ in the economy. This is also why we will see lower growth than in recent years.’
The main effects of the central bank’s interest rate policy will therefore only be clearly visible in the second half of this year. “Many companies and certainly households still have to deal with a lower fixed interest rate than they would have if they had to fix it again,” explains Van de Kerde. “Such effects are yet to come and will affect demand, which is needed to reduce core inflation.”
Source: BNR
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