Dutch economy to begin contracting by the end of the year, Rabobank says

Inflation will trigger an economic contraction in the Netherlands by the end of this year, and it will push through into next year, economists at Rabobank expect. Rising prices of energy and groceries, among other things, mean that consumers have less to spend, NU.nl reports.

Because this year has seen strong economic growth so far, Rabobank expects 2022 to end with a plus of 4.7 percent. Next year will start with a contraction but turn to a slight recovery. So the economists forecast 0.2 percent economic growth for 2023.

The decline in purchasing power is the main culprit for the sharply declining economic growth. Inflation will amount to 11.4 percent this year and 4.9 percent next year, the Rabobank economists expect. Most wages will increase less than that, resulting in consumers having less to spend.

Businesses are also dealing with higher energy and material prices, which means they either have to pass it on with higher prices or cut into their profit margins.

Rabobank expects the weaker economic period to last for an extended time. “Because the damage of inflation gradually seeps through the economy, we do not expect a short-term negative shock. Rather, we think that growth will come to a virtual standstill over a longer period of time,” economist Frank van Es said.

The bank stressed that the forecasts are uncertain. It is difficult to estimate the consequences of prolonged high inflation, for example. “It is clear that many households have to adjust their spending pattern or even run into financial problems, but it is uncertain to what extent this will ultimately weigh on economic growth.”