International Monetary Fund expects Dutch economic growth to slow to near halt

The economic growth of the Netherlands and several other European countries will come to a near standstill, the International Monetary Fund (IMF) predicted in new estimates for the global economy. According to the forecast, consumer prices will continue to rise for some time.

For the Netherlands, the IMF has lowered its forecast for this year from 1 to 0.6 percent growth. Next year, the economy will grow 1.1 percent, slightly less than the 1.2 percent the IMF expected in the previous estimate in April. That makes the UN organization more gloomy than the Central Planning Office (CPB), which predicted growth of 0.7 and 1.5 percent last month.

In several other European countries, the prospects are even worse. For example, the economy of important trading partner Germany, where the industry is struggling, is expected to shrink by 0.5 percent this year. And in Austria, the IMF expects a plus of only 0.1 percent this year, followed by 0.8 percent next year.

The sharp economic slowdown has everything to do with high inflation. Central banks have raised interest rates sharply to halt price increases, but this is also putting a brake on the economy.

“The tighter credit conditions are putting pressure on housing markets, investments, and activity,” IMF chief economist Pierre-Olivier Gourinchas noted. He also pointed out that bankruptcies are increasing. The economic slowdown is mainly visible in the more developed countries, although many risks lurk in emerging markets, he said.

An exception is the United States, for which the IMF slightly increased its estimates. On the other hand, the IMF became significantly more pessimistic about China because of the real estate crisis there, which could also have consequences for many more countries.

Worldwide, the IMF expects 3 percent growth in 2023 and 2.9 percent in 2024. That is slightly less than previously anticipated. The IMF further assumes inflation will remain relatively high in many countries until 2025.

The Netherlands is no exception there. The IMF predicts 4 and 4.2 percent inflation for this year and next. The fact that inflation will rise again next year may be due to the expiration of the government’s energy price cap. Only when inflation drops clearly everywhere will central banks loosen their grip on the economy, Gourinchas thinks.