ANP extension
Just before Christmas, while energy prices are unprecedented, the president of De Nederlandsche Bank (DNB) Klaas Knot, calls on employers: raise wages by 5 to 7%. This, together with the government’s energy cap, should be enough to bear the pain of rising prices.
It comes as a result of a Catshuis meeting last night, where the cabinet sought advice from a number of prominent economists. Knot has urged the Cabinet not to compensate even more, as this will further fuel inflation, she says tonight at News time.
A 5 to 7 percent wage hunger isn’t an easy thing to do, says Knot. “We’ve made some estimates and we don’t want wages to fall any further. Let’s say you want to keep wages constant, then you end up with a 5 to 7 percent wage increase. That’s an average macro-level calculation.”
As a government, you cannot cut spending and provide support that finances a higher budget deficit.
Corporate profits are quite high, Knot thinks. “Sectors like commerce, industry, transport. Sectors where high profits have been made.” Especially the companies that have grown so big because of cheap gas and low wages. “This has come to an end. We have a structurally tight labor market and energy and work will be scarce in the coming years. Higher pay is part of that.”
Although, according to Knot, not all sectors will be able to afford it. Bob Kaptein, director of the Maison Kelder pastry shop in The Hague, also agrees. He doesn’t believe in a generic measure. The pastry chefs will receive a salary increase of 7% over two years. This is agreed in the collective labor agreement. “There’s simply no room in some branches. Everything is more expensive, energy costs have gone up and my bakers, my shops are suffering. We can’t fix all the inflation.”
Additional inflation
Energy prices will remain high over the next few years, but the government can’t continue to compensate, Knot says. “The risk of looking at government so easily is like a dog chasing its tail: as a government you cannot cut spending and provide support that finances you with a higher budget deficit. Any more stimulus will lead to inflation extra”.
He thinks the government should take a good look at compensation for people in desperate need. “Because now the support also reaches people who don’t need it at all.”
We have now reached the lowest point in the Netherlands.
The Dutch economy is cooling down due to high inflation and collapsing world trade and will weather a mild recession in the coming months. How worrisome is it according to Knot? “We expect the economy to cool only slightly. There will be a few quarters of negative growth, but that won’t translate into negative annual figures. We don’t expect a deep recession.”
The mild recession is now also translating into a drop in house prices. But those prices, according to Knot, had risen too fast, especially for starters. He thinks that after a 14% increase in 2022, a 6.5% correction in the housing market is not a concern. “It’s a fix limited to the huge increase.”
Knot is also not pessimistic about the economy as a whole. Economic growth will return over the next year, with around 2% in 2024, DNB predicts. “With a shot in the arm due to the war in Ukraine, but now we have reached a nadir in the Netherlands. There is no reason to worry about a severe downturn in the economy.”
