Five questions about the state of our economy

1. Is the economy growing or shrinking?

We close 2022 with an average economic growth of 4.2%. We owe this to the growth spurt that the Dutch economy made in the first half of the year, which picked up after the corona lockdowns in 2020 and 2021. But precisely because everyone started consuming heavily again after the lockdowns, a shortage arose. They increased further because of the war in Ukraine. The prices of energy, services and raw materials skyrocketed. Everything became more expensive and consumer confidence and purchasing power fell, resulting in a slight economic downturn in the second half of the year.

We expect some economic growth again in 2023, partly due to government support measures. It will still be limited to 0.8%. In 2024, the economy is expected to grow by more than 1.5 percent.

2. So there is currently less economic growth. Is it bad?

Sometimes lower growth or a mild recession may be necessary. In an overheated economy, there is more demand than production capacity. Then there will be a shortage of equipment and personnel in places where you don’t want it. In addition, inflation is increasing. You can read here how a recession can bring such an overheated economy back to earth.

3. Will inflation remain high?

We are past the worst peak of inflation. Prices, especially for food and energy, rose far too quickly last year. Household energy bills increased by more than 80% this year! Next year, the government will keep these costs within the framework of the energy price cap, but this will not stop inflation. The war in Ukraine has pushed up the prices of grain and other food, and the higher energy prices that producers pay for producing, storing and transporting food will be passed on to consumers for some time to come.

Inflation is expected to reach 4.9% in 2023 and 5% in 2024, when the energy price cap expires. This is still higher than the 2% we aim for. If you want to know more about this, go to our webpage inflation.

4. Can wages keep up with inflation?

Households’ purchasing power has fallen over the past year, and companies that use a lot of energy have made less. As a result, they spend less and this slows economic growth.

Most wages have so far not risen in line with inflation, but that is changing. Collective bargaining wages in companies are expected to rise by an average of 5.0% next year and by 4.2% in 2024. This brings them closer to expected inflation. It is good for purchasing power and thus also for the economy.

An overenthusiastic wage increase in line with full inflation is not wise because of the risk of a wage-price spiral. Companies that have to pay such higher wages may be forced to raise the prices of their products sharply. Which in turn leads to higher wage demands and so on.

Inflation is not the only reason for the expected wage increases. The tightness of the labor market also plays a role. Several sectors faced a major shortage of personnel this year. But this too is changing; unemployment figures are rising somewhat. Because when the economy is down, companies simply hire fewer people. At the same time, more people are looking for jobs.

5. House prices fall. What does this mean for homeowners?

Since the start of 2022, mortgage rates have risen by around 3 percentage points. That means higher monthly costs, which means homebuyers can borrow less. This, combined with lower consumer confidence and lower purchasing power, means that the housing market, which was overheated until recently, is cooling down. House prices have already started to fall in recent months and are expected to fall by 3% in the coming year.

This means a wider choice of homes for buyers, lower house prices and more time to decide. There is also less overbidding. This development is a big change compared to previous years.

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