Inflation in the Netherlands is set to rise sharply next year as the ongoing economic boom finally starts to drive up wages, the Dutch central bank DNB said on Monday. The euro zone's fifth largest economy is already in its fourth consecutive year of above average growth and is expected to continue that run at least until 2020, the central bank said.
So far, the strong rebound after the recessions of 2009 and 2013 has not translated into markedly higher wages. But that is about to change, according to DNB's new projections. "The economy is booming", DNB director Job Swank told reporters. "Companies in a growing number of sectors have problems finding workers and we expect this to lead to a significant rise in wages."
Economic growth is seen at 2.5 percent this year, slowing down to 2.2 percent in 2019 and 1.9 percent the year after, DNB said. In 2017, growth was at 3.3 percent, a high for the decade. Growth of disposable incomes is expected to accelerate from 2.6 percent this year to 3.5 percent in 2020.
This will help inflation rise from 1.1 to 2.5 percent next year, DNB said, reaching the highest level since 2013. This would take Dutch inflation well above the 1.7 percent average predicted for the whole euro zone by the European Central Bank last week. "Wage growth will be a lot stronger than we have seen in a long time", Swank said. "And it's about time, after 15 years of very small wage increases."
The Dutch central bank has repeatedly called on employers to raise wages in recent years, as it said higher consumer spending would make the economy less dependent on exports.
The central bank warned that its rosy picture for the Dutch economy could rapidly darken if the current threats of new US tariffs on European imports lead to a full blown trade war.
A scenario in which the United States introduces a tariff of 10 percent on all European imports, and Europe retaliates with similar measures, would lower the growth of the Dutch economy by 0.5 percentage points per year until 2020, DNB said. Unemployment would be almost 1 percentage point higher by 2020 than the 3.5 percent level now predicted.
"A tariff war will have worse consequences for the Dutch economy than Brexit," Swank said. "If everybody acted rationally this would be avoided, but I'm not sure we can count on rational behaviour."
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