Wage pressure would be eased by introducing measures to increase the labour supply. The budget situation will deteriorate over the short-term, but nevertheless the automatic stabilisers should be allowed to work fully. The main domestic downside risk to the projections is that the financial crisis may have a stronger effect on pension assets, forcing pension funds to hike contribution rates in order to guarantee solvency. This would reduce net income growth, jeopardising a recovery in private consumption, as happened in early 2003.
Netherlands: Budget situation to deteriorate
After coming to a halt in mid-2008, growth will turn negative in 2009. The following year a recovery will get under way as stronger domestic demand is underpinned by easier monetary policy, real income growth is supported by lower inflation, and exporters benefit from stronger world trade. However, a tight labour market will create some persistence in core inflation.
Economic data
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