The chance that the Dutch economy will end up in a recession is increasing. According to economists at ABN Amro, there is currently a lot of headwind due to high inflation, rising interest rates and the lockdowns in China. Rabobank economists are anticipating a mild economic recession later this year.
Due to strong domestic and foreign demand, these will not yet cause a contraction in the second and third quarters of this year. But it is expected that the economy will cool down at the end of the year, increasing the chance of two consecutive quarters of contraction and thus a recession, ABN Amro says.
Russia and China
According to ABN Amro, the high energy prices, but also other costs that remain high, will also cause inflation to be above 3% next year. According to the bank, monetary depreciation is the main factor threatening economic growth. Because of the war in Ukraine, western energy companies are pulling their hands off Russia. In addition, Brussels also wants dependence on Russian oil and gas to be reduced. An additional disadvantage is that energy demand from China will increase again if the corona measures are relaxed there. According to ABN Amro, energy prices will therefore remain high until the end of next year.
Reduce excise duties
Measures by the government, such as lowering excise duties, will also ensure that some of the inflationary pressure that would actually be felt this year is transferred to next year. ABN Amro further notes that inflation is not only high due to strongly fluctuating energy and food prices. A ‘wider basket of goods’ also puts pressure on prices. For example, core inflation, excluding energy and food prices, was 3.5% in April alone.
ABN: ‘Increase interest’
The ABN economists further believe that the European Central Bank has no choice but to raise interest rates this year to curb inflation. The bank is counting on four interest rate steps this year of 0.25 percentage point each. ABN Amro explains that, in addition to inflation, higher interest rates are a growth-retarding factor. “Credit is becoming more expensive and it is becoming more expensive for companies to invest, which is slowing down demand,” the bank said.
‘Mild economic recession’
Rabobank expects the Dutch economy to enter a mild economic recession later this year. One of the reasons is high inflation. This will put pressure on spending and investments, which could cause the Dutch economy to contract for two quarters in a row. Rabobank does not think inflation will fall sharply in the short term.
In addition, staff shortages and global disruptions in the supply chain of companies are slowing growth in many Dutch sectors at the end of this year. That write Rabobank economists and sector specialists at the bank. They foresee a growth of the Dutch economy of almost 3% for the whole of 2022.
Rabobank economists expect a 0.2% contraction for next year