The Dutch economy managed to escape a mild recession in the fourth quarter. It actually grew relatively strongly in the last months of 2022, at 0.6 per cent. This is because a dip in household spending did not materialise. The Dutch economy is expected to grow by 2 per cent this year and 0.9 per cent next year, Rabobank said.
Consumption rose remarkably fast in the last quarter. Rising wages, one-off benefits and government support probably played a role in this. In addition, Dutch manufacturing proved as popular as ever across national borders, as the trade surplus with foreign countries also unexpectedly increased sharply in the final months of the year. Taken together, economic growth in 2022 totalled 4.5 per cent.
The Dutch economy remains heavily overheated, with a shortage of personnel still the most frequently mentioned obstacle. Rabobank expects unemployment to rise only slightly, from 3.5 per cent in 2022 to 3.8 this year and 4.1 per cent next year. Still, the bank expects a relatively strong GDP increase of 2 per cent for this year. A higher minimum wage, increased benefits, pensions and allowances, and a rise in collective bargaining wages will give a lurch to household consumption. This does mean oil on the fire for inflation, which is expected to average 5.0 per cent this year. For 2024, Rabobank expects relatively subdued economic growth of 0.9 per cent.
The fight against high inflation is not over yet. Thanks to the introduction of the price cap and the sharply lower wholesale market price of natural gas, energy's contribution to the inflation rate will be negative this year. The government is providing strong support to the economy, while collective wage growth is expected to rise to an average of 5.6 per cent this year. In February, collective wages were already 4.9 per cent higher than a year earlier. Consumers are better able to pay these higher prices because of increased incomes. All in all, this creates price pressure on a broad front of products and services. Rabobank expects inflation to remain high in 2024 as well, forecasting 4.4 per cent.
The European Central Bank (ECB) has rapidly raised the deposit rate to 2.5 per cent. A 0.5 percentage point increase has already been announced one already hinted that it is unlikely to stop there. These interest rate hikes affect the rates that households and businesses pay for their loans. In the longer term, the rise in interest rates could create more business momentum.
Unemployment continued to fall in the final months of 2022, averaging 3.5 per cent last year. Meanwhile, the share of Dutch people in paid employment rose to a new record. Rabobank expects the number of bankruptcies to slowly normalise with which unemployment will also rise slightly. An average unemployment rate of 3.8 per cent is assumed for this year and an average of 4.1 per cent for 2024. By comparison, in the previous 20 years, unemployment averaged 6 per cent.
Household consumption grew by 0.9 per cent in the last quarter of 2022. Further, the number of employed people grew hard above expectations in the last quarter of last year. For 2023, the bank forecasts consumption growth of 2.1 per cent, with most of the growth in the first half of 2023. After a better first half, consumption growth in the second half of 2023 and in 2024 is somewhat slower. For 2024, it expects 0.7 per cent growth. If government support falls away, this is expected to weigh on consumption.
Business investment also performed better than expected in the last quarter of 2022, with growth of probably 0.4 per cent. The bank expects business investment to continue growing by 2.6 and 0.8 per cent next year and next, respectively. For this GDP component, the spillover effect also provides a more positive picture for 2023.
Government consumption increased somewhat less than expected in the last quarter of 2022. As a result, government consumption increased by 0.3 per cent in all of 2022, after growing strongly in recent years. Public investment was under strong pressure during the pandemic and continued to fall in 2022, estimated at 4.4 per cent. Public investment is expected to grow by 2.9 per cent this year and 2.8 per cent in 2024.
Consumers spent substantially more in the last quarter of 2022 than we expected at the end of last year. Businesses also invested more than anticipated. In the last three months of the year, this led to a surge in imports from abroad. At the same time, exports also grew briskly in the last three months of the year, as foreign companies and consumers also turned out to keep their hand on their purse strings less firmly than previously expected. This further boosted demand for Dutch goods and services. On balance, the Dutch trade surplus with foreign countries grew strongly in 2022 as a result.
Source: Rabobank
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