Iran war to dampen Dutch economic growth this year: ABN Amro

ABN Amro has revised down its outlook for the Dutch economy, citing the impact of the conflict in the Middle East. The bank says the war and higher energy prices are weighing on consumer sentiment, leading households to spend more cautiously. It also notes that uncertainty linked to the conflict is dampening business confidence.

ABN Amro has downgraded its outlook for the Dutch economy, now forecasting 0.9% growth for this year compared with an earlier projection of 1.5%. For next year, it expects GDP to rise by 1.1%, slightly below its previous estimate of 1.2%.

The bank said the economy got off to a weak start, with quarterly growth of just 0.1%. Combined with persistently high energy prices, this has prompted the downward revisions.

ABN Amro further expects energy prices to stay elevated for a prolonged period, even in the event of a swift reopening of the Strait of Hormuz for maritime transport. The bank notes that restoring energy production and global supply chains will take time, and that it will not be immediate before supply and demand in the energy market return to equilibrium.

Inflation forecasts have been adjusted upwards. Prices are now expected to rise by an average of 3.1% this year and 2.7% next year, compared with earlier projections of 2.9% and 2.2%. ABN Amro says higher energy costs are already being passed on through higher selling prices, resulting in a wider spread of inflationary pressure across the economy.

ABN Amro says rising inflation will prompt the European Central Bank (ECB) to increase interest rates. The bank expects a 0.25 percentage point hike at next week’s ECB meeting, which would lift the deposit rate to 2.25%. It also anticipates another increase in July, bringing the rate to 2.50%.