Dutch economy resilient but chance of recession, euro crisis, and uncertainty remains

The Dutch economy weathered the coronavirus pandemic and is still in good shape despite the energy crisis and foreign banks collapsing, the Central Planning Office (CPB) said in a report on Wednesday. But uncertainties remain, and there is still a chance of a recession or a new euros crisis, the planning office said.

Just after coming through the pandemic, Netherlands companies and households faced high energy prices and inflation caused by Russia’s invasion of Ukraine. Several banks collapsed in the United States and Switzerland. And home prices started falling in the summer of last year.

But the financial systems weathered those blows, partly thanks to government support during the coronavirus pandemic. “The necessary reduction of this support, at a time when there is still a lot of economic uncertainty, does entail risks, but the financial sector is sufficiently resilient,” said CPB director Pieter Hasekamp. Financial institutions like banks and pension funds have sufficient reserves, and many homeowners have recently seen their financial positions improve.

The CPB doesn’t think the falling house prices will have significant consequences for the Dutch economy. But it is worried about young people, low net worth homeowners, and people who have recently purchased a home. Their position has improved less than that of many others in recent years, and, as a result, they could fall into financial trouble faster.

“The danger of a banking crisis in the Netherlands seems limited,” Hasekamp said. “And the financial risks from the housing market are also manageable.”

The Netherlands is at risk of falling into a minor recession, partly due to the high inflation. The higher prices mean consumers and businesses can spend less. A recession is when the economy shrinks for at least two quarters in a row. In the first quarter of 2023, the Dutch economy shrank by 0.7 percent.

There is also a chance of a new euro crisis, according to the CPB. The main risk factors here are high government debt and sharply rising interest rates, particularly in Southern Europe.