Recent prospects for the Dutch economy do not look very optimistic. Growth threatens to fall back to a low level for a long time. The Dutch economy will lose a lot of momentum in the coming years due to the ageing population. This will result in many problems since it is precisely the ageing population that is driving up the costs for the government due to a higher demand for healthcare. In addition, low productivity will put even more pressure on the economy.
The Netherlands is entering a period in which a relatively small number of working people have to provide for a large group of elderly people. And that with slow economic growth and possibly little increase in purchasing power. This is the picture that the Netherlands Bureau for Economic Policy Analysis (CPB) sketches in two recent reports. According to government analysts and mathematicians, all available resources will be swallowed by the needs of the older generation.
From 2022 to 2025, economic growth will only be 1.1% and purchasing power will be going down to zero. The Dutch Central Bank (DNB) has pictured a similar forecast for that period and an analysis by the CPB, which goes till 2040 and beyond, shows only 0.9% annual growth for 2026 to 2040.
Is this pessimism justified? No, says Bas Jacobs, Sijbren Cnossen Professor of Public Economics at Erasmus School of Economics. 'If you know that growth has been much higher the past decades, then the lower growth of recent years doesn't have to be the new standard. The blow of the Great Recession was hard, and we've lost an average of one per cent growth per year for the past ten years'.
According to the calculations of the Netherlands Bureau for Economic Policy Analysis, productivity growth results in more possibilities to divide wealth. However, it also leads to bigger shortages because of an increase in government expenditures, while tax revenue remains the same, especially when it comes to additional pensions. 'That reasoning fits a question mark,' says Jacobs, 'Higher productivity growth is also likely to go hand in hand with higher returns on investment. As a result, pension funds' benefits will increase. That has not been taken into account in the sums at the moment'.
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The article from Het Financieele Dagblad can be downloaded above, 27 December 2019 (in Dutch).