Thursday 18 August 2022

War in Ukraine could lead to recession, government forecaster says


The CPB macro-economic forecasting agency has updated its spring economic forecasts to reflect the war in Ukraine and now says the Netherlands could end up in a short recession.

The new scenario takes into account the likely impact of the war on the economy, when combined with high energy prices. ‘As at the start of the coronavirus pandemic, there is a fundamental external uncertainty,’ the CPB said.

The new scenario assumes that the war will lead to long-term high energy and commodity prices and lower spending in various European economies. This, the CPB said, will affect world trade and therefore the Netherlands as a trade-based economy. In addition, the uncertainty will dent consumer and producer confidence.

If this happens, GDP will contract for ‘a number of quarters’, with growth reaching 1.9% in 2022 and nil in 2023. Inflation will then rise to almost 8%, cutting spending power by 5.1 percentage points. Last week, the CPB said inflation will average  5.2% this year.

This scenario does not take into account energy tax cuts and compensation for low income families announced by the government last week.

Dutch employers’ organisation VNO-NCW has also warned against underestimating the economic danger presented by the war in Ukraine, and said earlier this month it could spark a 1970s-style recession.

The employers’ body points out that every energy crisis in history has ‘led to a recession’ and says that energy prices will remain high for years.

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