DNB President Knot warns against premature optimism due to falling gas prices

Klaas Knot, president of De Nederlandsche Bank (DNB), warns against "premature optimism" given falling gas prices. He believes that inflation in the Netherlands will not be as high this year as it was last year. If the Netherlands enters an economic recession, Knot said it will be a "very mild recession" and that is "nothing to really worry about," he explained Sunday on the television program WNL Op Zondag.

"At the moment, it seems like gas prices are going down slightly," Knot said. However, it is too early to say whether this downward trend in the gas market will continue. "Gas stocks need to be replenished this year for next winter. We can't do that this year with Russian gas, while we were able to do that last year. So we should hold back."

But that doesn’t change the fact that energy prices probably won't rise as much this year as they did last year, according to DNB’s president. Knot estimates that overall inflation will fall to five to six percent this year. This means that life in the Netherlands will still be five to six percent more expensive this year. In his opinion, inflation is still far too high.

The DNB president also noted that inflation has now increased. Not only have energy bills increased significantly, but so have prices for services such as visits to the hairdresser or food at the butcher. According to Knot, the European Central Bank (ECB) will therefore have to raise interest rates in the euro zone several times. By making borrowing more expensive, the ECB is trying to curb demand in the economy, which should dampen inflation in the eurozone.

"In any case, assume that we will raise interest rates by half a percentage point each in February and March, that we're not done with that, so there will be something to follow in May and June and so on," said Knot, who is also one of the ECB's policy makers. However, the DKB president is not yet commenting on the size and timing of the interest rate steps after March. "But it's clear that we're not there yet.”

For a recession, Knot used the definition of two consecutive quarters of economic contraction. Since the Netherlands experienced contraction in the third quarter of last year, he does not rule out a recession. The figures for the fourth quarter have not yet been published. According to Knot, however, there is also a "real chance" that the Netherlands will escape a recession. He pointed out that consumers had already spent a lot of money in December.