Netherlands Central Bank Statement

Author: | Published: 5 Sep 2017
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The Dutch economy has emerged from its double dip. In fact, for 2017 we expect economic growth to peak at 2.5%, the highest growth rate since 2007. Robust growth is expected to continue in 2018 and 2019, exceeding potential growth. By the end of 2019 we expect the Dutch output gap to close and real GDP to be about 10% higher than its pre-crisis level. This means that the Dutch economy will perform at full potential by 2019. To date, events such as Brexit and the result of the US presidential elections, have not particularly hindered the Dutch economy. In the longer run increased protectionism may harm Dutch exports.

The strong economic performance is broadly based and supported by all expenditure categories. For 2017 we expect world trade to pick-up and corporate investment to recover. Private consumption remains a driver of economic growth as well. As house prices continue to recover–improving household balance sheets–a positive feedback loop is emerging, with rising consumer confidence and employment, fuelling higher consumption and house purchases. As employment grows, unemployment is set to fall to 5% in 2017 and is expected to decline further to 4.4% by 2019.

Public finances quickly moved towards balance after the start of the upturn in 2014. For the first time since the financial crisis, 2016 saw a slightly positive government balance (0.4% of GDP). We expect the surplus to increase to 1.1% of GDP by 2019.

The long period of consolidation and reform seems to have paid off. However, solid economic growth does not mean that policymakers should be complacent. First, the Dutch government should strive for a budget surplus in economically favourable times to create room for stabilisation in case of a next crisis. Second, further reform is necessary to prepare the Dutch economy for the future. Now is the time to make the Dutch economy more resilient and more stable.

The housing market is among the most pressing structural challenges. Housing prices are currently rising rapidly, especially in the major cities. While there are signs of local overheating, credit growth is losing momentum. The spiralling house prices in the cities are mainly attributable to scarcity pricing. Ongoing migration to the cities is spurring demand for urban housing and supply is failing to keep pace. This reveals a structural supply shortage, especially in the private rental market, mainly resulting from planning restrictions, a lack of capacity and the absence of incentives to build more rental housing.

Additional steps are required to create a more balanced housing market. Increasing housing supply will reduce shortages, but leaves institutional imbalances unaddressed. An accelerated phasing out of the mortgage interest relief scheme is vital to level the playing field between buying and renting, and would make private rental construction more attractive for municipalities. Further reducing this subsidy on mortgage credit will also decrease the housing market's dependence on debt financing. Moreover, a gradual decrease of the loan-to-value (LTV) limit to 90%, as advised by the Dutch Financial Stability Committee in 2015, will further reduce the reliance on debt and increase the resilience of Dutch homeowners.




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