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Outlook 2017: domestic dynamics unconcerned by international uncertainties

Economic Comment

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To the Outlook 2017 overview page

  • We expect the Dutch economy to grow by 2.0% in 2016 and 1.8% in 2017.
  • We are currently experiencing a strong economic recovery, driven mainly by strong growth in the domestic economy. However, the international uncertainties remain.
  • Private consumption rises because of higher disposable income of households and increased consumer confidence
  • Inflation will increase in the coming quarters
  • Moderate decrease unemployment
  • International uncertainties remain marked risk for growth

In the third quarter of 2016, the Dutch economy grew 0.7% compared to the previous quarter. The volume of GDP in the Netherlands has now risen by 0.7 per cent for three consecutive quarters, clearly showing that we are experiencing a strong economic recovery. This year, we expect to see growth of 2.0 per cent and next year we expect growth to amount to 1.8 per cent (table 1).

Table 1: Forecast table the Netherlands
Table 1: Forecast table the NetherlandsSource: Statistics Netherlands (CBS), Rabobank
Figure 1: Growth is broad-based
Figure 1: Growth is broad-basedSource: Statistics Netherlands (CBS), Rabobank

The strength of the Dutch economy comes mainly from domestic factors. The volume growth of private consumption will make a relatively strong contribution to economic growth this year and next year (figure 1). The main cause of this is the strong increase in disposable household income. Very low inflation and steady wages growth have brought about a relatively strong increase in real wages (figure 2). The increase in employment also means that households have more money to spend. In 2016, households also had more money to spend due to the 5 billion euro package of tax cuts. At the same time, consumer confidence is at its highest level since 2008, further increasing consumption (figure 3).

The high level of consumer confidence is also closely linked to the recovery in the housing market, where we expect to see an average increase in prices of around five per cent both this year and next year. Transaction volume in the housing market is still rising strongly, especially this year. This has led to housing investment making a strong contribution to economic growth in 2016, although this will be significantly less next year.

The fact that domestic spending components are now contributing to economic growth after years of stagnation is not surprising. The high level of optimism among consumers regarding the current economic climate is however excessive in our view, given the international developments and the fact that the Dutch economy has not recovered from the Great Recession in all respects. The international situation is in our view the greatest cause for concern: moderate growth at our major trading partners means that export growth will be lower this year and in 2017 than we have become used to in previous years. There are moreover numerous international uncertainties, of which the increasingly protectionist climate is the most worrying in our view.

Inflation will rise gradually in the coming quarters, mainly because the negative effect of oil prices will no longer negatively influence the inflation figures. The rapid decline in unemployment in the past quarters is likely to slow in the coming period. The rise in employment will be less strong while the supply of labour will increase faster as a result of policy effects (especially the increase in the age of entitlement to state retirement pension) and the boost to labour participation coming from the recovery in the labour market.

Figure 2: Wages growth now well above inflation
Figure 2: Wages growth now well above inflationSource: Statistics Netherlands (CBS)
Figure 3: Consumer confidence at highest level since the crisis of 2008
Figure 3: Consumer confidence at highest level since the crisis of 2008Source: Statistics Netherlands (CBS)

What's next?

The rate of growth of the Dutch economy is currently above what is sustainable in the longer term, or what is known as its potential growth. The big question is how the economy will develop after 2017. That’s why we outline three possible scenarios for the period 2018-2023: Muddling Through, The Fourth Industrial Revolution and Deglobalisation.

Colophon

The Outlook 2017 is a publication of RaboResearch of Rabobank and a co-production with Financial Markets Research. The date of completion is the 28th of November 2016.

The views presented in this publication are based on data from sources we consider to be reliable. Among others, these include Macrobond. These data have been carefully incorporated into our analyses. The economic growth forecasts and scenarios are generated from the NiGEM global econometric structure models.

The use of this publication in whole or in part is permitted only if accompanied by an acknowledgement of the source. RaboResearch accepts, however, no liability whatsoever should the data or prognoses presented in this publication contain any errors.

Abbreviations for sources: CBS: Statistics Netherlands, OECD: Organisation for Economic Co-operation and Development, CPB: Economic Policy Analysis Netherlands, IMF: International Monetary Fund, ECB: European Central Bank, Fed: Federal Reserve.

© 2016 - Coöperatieve Rabobank U.A., Nederland

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Author(s)
Martijn Badir
RaboResearch Netherlands Rabobank KEO
+31 88 726 7864

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