Dutch Central Bank slashed 2022 economic forecast; Long-term vision for pandemic needed

The Dutch Central Bank (DNB) reduced its economic growth forecast for the Netherlands in 2022, predicting that the hard lockdown announced last weekend will be a blow to the Dutch economy. The central bank predicted the country will achieve growth of 2.2 percent next year, down from the 3.6 percent it previously projected. In a hastily produced calculation, Olaf Sleijpen, the DNB director of monetary affairs and financial stability, said the organization is assuming the lockdown will last throughout the entire first quarter of the new year.

In 2023, the economy will further recover with economic growth of 2.1 percent. In the original estimate that DNB had prepared, that expected to be a contraction of about 1.7 percent. The economy has grown by 4.5 percent this year, the central bank believes.

Although the lockdown and the Omicron variant will have a short-term negative impact on the economy, the DNB expects that the coalition plans will give the economy some support in the medium term. "The government wants to spend more, and that in itself will have a positive impact on growth," explained Sleijpen. The DNB has not yet made in-depth calculations about the coalition agreement, which was formally announced last week.

The DNB is also assuming that inflation will peak at the end of this year. On average, currency depreciation this year is 2.7 percent, while inflation will remain on the high side in the coming years. Inflation could hit 3 percent next year and 2.9 percent in 2023. The sharp rise in energy prices this autumn will not be repeated in next year’s figures, DNB predicted. At the same time, there will still be shortages of raw materials and materials for companies, which can also push prices higher.

Unemployment reached a low this year, falling to a level of 3.3 percent, according to DNB. It will rise to 3.4 percent next year and will tick up another 0.1 percentage point in 2023. The DNB said that worker shortages are "increasingly pressing.” Politicians must take the lead and work out solutions for the issue, Sleijpen said. They can achieve this by working to improve labor participation, and also encourage transition between sectors. Labor migrants may also be able to help solve the shortage.

The central bank has further appealed to the government to come up with a longer-term strategy for dealing with coronavirus. The extra financial support being offered now is perfectly understandable, Sleijpen said. "But in the long run, the generic way in which it is now distributed will have an economically disruptive effect." The DNB is advocating for more customization in the government’s pandemic relief programs.

In addition, the DNB wants the government must come up with plans about how the country will control the pandemic moving forward. This should give companies more certainty so that they may need less financial support over time. Furthermore, the government must ensure that the national debt does not exceed 60 percent of the gross domestic product (GDP). For the time being, the debt ratio is expected to peak at 55.7 percent this year.