IMF: Inflation will remain very high next year, stalling Dutch economic growth

Inflation in the Netherlands is likely to remain at a very high level next year, and economic growth will likely grind to a halt, the International Monetary Fund (IMF) predicted. The organization said on Tuesday that it believes that the current energy crisis in Europe is not temporary, but permanent.

The fund's new estimates assume 12 percent inflation for the whole of this year. Next year, inflation could reach 8 percent, the IMF believes. That will then have a significant impact on the economy. For this year, the fund is still anticipating 4.5 percent growth in the Netherlands, but next year the economy is only expected to grow by 0.8 percent.

IMF chief economist Pierre-Olivier Gourinchas said the Russian invasion of Ukraine has triggered a "geopolitical realignment of energy supply" that is "broad and permanent." It will be "challenging" this winter to prevent Europeans from suffering in the cold, he said. Next year's winter will only be more difficult, he estimated. He also pointed out that the war in Ukraine is still ongoing 33 weeks after Russia intensified its invasion, and that the current problems related energy supply could simply get worse.

With its forecasts, the IMF presented a much gloomier outlook compared to many other economists. In the latest estimates from the Dutch government's Central Planning Bureau (CPB), the economy of the Netherlands could see possible growth next year of 1.5 percent. Because of proposals to boost purchasing power, the CPB assumed that inflation would fall below 3 percent next year, in estimates presented around Budget Day last month.

Inflation is skyrocketing and recessions are looming not only in Europe, but also elsewhere. The IMF also slightly revised its forecasts for the United States and China. Many developing countries are also suffering enormously from the expensive dollar. The IMF estimated that about a third of the global economy will experience at least two consecutive quarters of contraction this year or next.

Gourinchas indicated that the previously forecast global growth of 3.2 percent for this year should still be feasible. But for next year, the fund is tempering its forecast to 2.7 percent growth, 0.2 percentage points less than the 2.9 percent prediction released in July.

That may seem like a minor adjustment, but the economist emphasized that the picture can turn out to be much more bleak. "We estimate that there is about a 1 in 4 chance that global growth could fall below the historic low of 2 percent next year." Furthermore, there is a 10 percent chance that the global economy will only improve by 1 percent.