Recession risk is real but economy is strong enough to cope: CPB

Selling out a generation? The interests of home owners are part of the problem Photo:

The Netherlands still faces a “real risk” of a recession in the near future, but the economy is strong enough to weather the storm and avoid a major crisis, the government’s economic planning agency CPB says in its latest analysis.

High inflation and falling house prices are among the biggest challenges, while the withdrawal of government support to help people cope with the pandemic and soaring household bills will be a difficult balancing act.

“The necessary phasing out of this support, at a time where there is still a lot of economic uncertainty, does carry risks with it, but the financial sector is sufficiently resilient,” CPB director Pieter Hasenkamp said.

Hasenkamp also said the risk of a euro currency crisis had increased slightly because the cost of support packages had driven up government debts, particularly in southern European countries.

The Netherlands was less exposed to setbacks in the eurozone because of its relatively low level of debt, the CPB said.

The country’s banking sector and individual deposit savings were also better insured against a potential crisis than in the US, where three banks collapsed in a week in March.

House prices are falling, but the impact was likely to be less severe than during the crash that started in 2008. Household costs are relatively lower than they were then, while debt ratios have fallen and financial buffers have increased.

The main threat comes from rapidly rising prices, triggered by the soaring cost in gas and electricity last year after Europe cut Russian imports, which has forced central banks to raise interest rates.

Banks will have to steer a course between the risk of raising rates too fast and damaging people’s household wealth, and raising too little, which could lead to persistently high inflation.

Vulnerable households, such as those with few savings, people who have just bought their first property and younger homeowners, are more vulnerable to changing circumstances. “These groups are less able to absorb shocks caused by rising costs and interest rates, a lower income or falling house prices,” the CPB said.

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