The global recovery lost momentum in the second half of 2002, but world activity is expected to bounce back during 2003. For the time being, the Dutch economy is close to stagnation. This year´s economic growth is estimated at a poor 0.25 percent, and with a projected 0.75 percent, next year´s growth will be only slightly better.
The moderation of pay increases, partly owing to the recently concluded social accord, will have a positive impact on economic growth mainly in later years. Due to the continuing slow pace of activity, unemployment will rise next year by about 100 000 persons, or 1.25 percentage point of the labour force. The purchasing power of households will be under strong pressure next year.
These are some highlights of the December forecasts of CPB Netherlands´ Bureau for Economic Policy Analysis, which will be published in full in the CPB Report 2002/4 that will be available on www. cpb.nl as from December 18th. Simultaneously with this prepublication, CPB has released an Economic report to the Minister of Economic Affairs as well as an article in the ESB magazine. All three publications contain the same CPB forecasts, but with a different degree of detail and comments.
Global recovery with ebbs and flows
Following a strong improvement in the first half of this year, the recovery lost momentum in the United States as well as in Japan and Europe. Households are hesitant to consume and firms to invest in equipment and inventories. Thus, the recovery is quite uneven, partly due to the global cross currents of financial markets and geopolitical tensions. The pause in the global upturn is expected to end during the first half of next year, with a more pronounced growth rate thereafter, helped by improving profitability, rising productivity and substantial monetary and fiscal stimulus.
Nevertheless, the upturn can be characterized as brisk and uncertain. GDP growth of the industrial world is projected to accelerate to 2.25 percent next year. The US upturn has been quite bumpy this year. Quarters with strong growth were followed by a weaker quarter, mainly due to inventory fluctuations. Although activity is expected to remain weak at the beginning of 2003, monetary and fiscal impulses, and rising profits could push economic growth next year to a respectable 2.75 percent.
In the euro area, disappointing production figures and gloomy leading indicators have been reason for a downward revision of growth prospects. For the present year the area´s economic growth is projected at 0.75 percent, and for next year at 1.75 percent.
Mirroring demand, world trade growth substantially decelerated in the second half of this year. For the coming year, with output bouncing back, world trade is expected to accelerate to 7.5 percent, compared with an estimated 3.25 percent for the current year.
Dutch economy from stagnation to weak growth
The Netherlands´ economy has shown negligible growth for five quarters in succession. In the third quarter of this year Statistics Netherlands registered a 0.3 percent increase, but this figure can largely be accounted for by an additional working day. CPB´s leading indicator is sloping downward for the fourth quarter of this year and the start of next year. With a projected growth rate for the year as a whole of 0.75 percent, the Dutch economy will also under-perform in 2003. Dutch enterprises will lose market share because of a further loss of price competitiveness. Moreover, the 2003 budget plan contains drastic cuts of government spending and tax increases for households. A sharp increase of pension contributions also increases wage costs and reduces the purchasing power of households.
Low exports due to ICT and deteriorating competitiveness
For the first time since the seventies, Dutch export volume will contract this year. Main culprit is a sharp decline in re-exports, in particular of computers and mobile telephones. Re-exports are products which are imported and exported again after some minimal processing. But also do