Inflation to remain high, economic growth will slow down, economists say

Inflation in the Netherlands will remain stubbornly high, Rabobank economists noted in a new report about the Dutch economy. Energy prices for consumers next year will probably exceed the energy cap implemented by the Dutch government this year, they predicted. They also expect economic growth to decline significantly next year.

The energy price cap led to a decrease in household energy bills over the past few months. Gas prices are also nowhere near as high as they were just after the Russian invasion of Ukraine.

The economists predict an inflation rate of 5 percent for the whole of 2023. Next year, the increase in the overall price level will probably only decrease slightly to 4.4 percent, Rabobank's experts warned.

They assume in their projection that the government will extend the price cap into 2024, but may also raise the maximum price that consumers will face. This means that households will still face a loss in purchasing power despite of wage increases for the time being.

The economists said their forecasts are subject to uncertainty as “it is difficult to predict oil, gas, and electricity prices due to their volatility, and we cannot know for certain whether the government will support households and businesses next year, and if so, with what measures.”

However, the report stated that the Netherlands is currently not headed into an economic recession, as the Dutch economy performed better than initially thought in the last quarter of 2022. “The decrease in household spending that we expected given the high inflation rate did not happen,” explained RaboResearch economist Michiel van der Veen.

For 2023, relatively strong economic growth of 2 percent is expected. However, next year, growth is expected to significantly slow down to a plus of 0.9 percent, partly due to companies still struggling with staff and material shortages, and the declining construction of housing.

Van der Veen said that the number of building permits issued has strongly decreased last year due to the nitrogen issue, rising interest rates, and the declining house prices that followed. “We can therefore assume that post-housing investments will shrink significantly, and the economic growth will slow down as a result.”