OREANDA-NEWS. March 15, 2016. The Dutch economy is expected to grow by 2% both this year and next year. Domestic demand is strong, helped by temporary factors such as low inflation and the five billion tax cut package. The recovery in the labour market is also gaining strength. Export growth will however wane slightly this year, and the heightened international uncertainties are a risk to the Dutch economy. This is the message from the Rabobank economists in their Quarterly Economic Report published today.

Growth of domestic demand is setting the tone for 2016

Domestic demand is relatively strong in 2016 and will continue to rise in 2017, albeit at a slightly lower pace. Rabobank economist Martijn Badir: ‘The housing market is improving, employment is rising and consumer confidence is much stronger. Private consumption is also boosted by two temporary factors this year: inflation is still low, and we have the five billion euro package of tax cuts. Both these factors are generating a relatively strong rise in purchasing power, which supports private consumption. The effect of these temporary factors will largely disappear in 2017, so we expect private consumption to grow somewhat less strongly in that year.’

Export growth is waning slightly, but will pick up again in 2017

Dutch exports will grow by 3% in 2016 and 4?% in 2017. Badir: ‘Global growth will ebb somewhat in 2016. Growth at the most important trading partners for the Netherlands - the eurozone and the United Kingdom – will remain strong next year and is also picking up again in the United States. However the international uncertainties have also increased. If the fears of many investors turn out to be justified and a sharp global slowdown occurs, the Netherlands with its open economy will surely be affected by this.’

Concerns for the global economy

Allard Bruinshoofd, Head of International Research: ‘The main reason for concern among investors is the lack of coordination between the world’s major policy-makers, including the central banks. The Chinese yuan is coming under increasing pressure and the Chinese central bank wants to avoid a disorderly depreciation. If it does not succeed, this will be bad news for global trade and the value of the euro will rise, which will put downward pressure on exports from the Netherlands and the rest of the eurozone. In Europe, the Schengen Treaty is up for discussion due to the refugee problem. Any suspension of the Schengen Treaty would hinder the trade of goods and services within the EU. And then there is also the risk that the United Kingdom will leave the European Union.’

Generally speaking, there are concerns regarding the monetary policy of the central banks and the current low level of interest rates. Bruinshoofd: ‘Coordination between the major central banks is needed to break the pattern of ever-increasing monetary accommodation, with all the undesirable side-effects this has for the economy.'

The Economic Quarterly is available to read and download at: www.rabobank.com/economics