The Organization for Economic Co-operation and Development (OECD) also expects the Dutch economy to grow by 1.1 percent in 2024. These poor forecasts are the result of a combination of factors, such as high inflation, the cooling global economy and interest rate hikes by central banks.
This makes the OECD gloomier than the CPB. The Dutch institute, based in The Hague, expects an increase in gross domestic product of 1.5 percent next year, after a plus of 4.6 percent this year.
According to the Paris-based OECD, her more negative figure will not mean a blow to the labor market. Unemployment is projected to rise slightly from 3.6 percent this year to 4.1 percent in 2023.
Inflation peak
Inflation remains alarmingly high in the Netherlands. The OECD forecasts a peak of 15.4 percent for this quarter, driven by energy and food prices. Next year inflation would be 8.5 percent, the year after that 3.9 percent. The loss of purchasing power would only be compensated in 2024 by higher wages, which should rise by 5 percent in both 2023 and 2024.
With this modest outlook, central banks may be tempted to stop raising interest rates in order to hit the brakes on economic growth. That would be a bad idea, says the OECD. According to the think tank, the risks of going too fast with interest rates are less great than the risks of marking time.
In the latter case, inflation threatens to derail further, warns OECD economist Álvaro Santos Pereira. “Bringing inflation under control must be the top priority now, or we could face a wage-price spiral like in the 1970s, or inflation become so entrenched that the pain will only get worse.”