Higher wages pose no threat to the Dutch economy. The average wage increase will be 5% next year and more is in the works, predicts De Nederlandsche Bank (DNB).
DNB is pleased with the discovery. “We think this development is positive. There are sectors where a higher wage increase is possible,” director and chief economist Olaf Sleijpen tells NU.nl.
According to DNB, it is certainly responsible to raise wages further right now. Last week the employers’ organizations AWVN, MKB-Nederland and VNO-NCW called on companies to be more cautious with structural wage increases, in order to prevent inflation from rising further.
The average annualized salary increase is currently 3.3%. “The risk of a wage-price spiral only arises if you fully compensate for inflation. So you have to assume wage increases of 14% or more,” says Sleijpen.
Economic developments and the outlook for DNB assume that our economy will cool down next year. Next year, economic growth will be 0.8%. The cooling is caused by high inflation and lower growth in world trade.
Recovering from the coronavirus downturn, the Dutch economy was running at full capacity in the first half of the year, so full-year growth is still 4.2%. After 2023, the economy will recover, with expected growth of 1.6% in 2024.
“We are approaching recession”
Sleijpen doesn’t expect a recession. The Dutch economy contracted slightly in the third quarter. “And we also expect a contraction for the fourth quarter and the first quarter of next year. But that does not mean that we will end up in a recession. We will overcome it and then grow.”
DNB also expects inflation to peak this year. Due to the energy cap and other government measures, a smaller price increase will follow in the next few years. Mainly due to the dramatic increase in energy prices, inflation is estimated to average 11.5% this year. This will be followed by a decrease to 4.9 percent in 2023 and 5.0 percent in 2024, the year in which the energy price cap ends.
DNB advises the government not to opt for long-term compensation of the energy costs of large groups of households and businesses. “The government should focus on families who really need help,” says Sleijpen. “So we’re mostly talking about people who live in rented houses. We also need to work quickly to make homes and businesses more sustainable.”
