The CPB Netherlands Bureau for Economic Policy Analysis (CPB) and Dutch central bank (DNB) are optimistic about the growth of the Dutch economy. But should they be? According to Bas Jacobs, Professor of Public Economics, the growth of the Dutch economy is only average, when putting it into historical perspective. Furthermore, the low interest rates of the past decade have increased the chance of secular stagnation. This will have consequences for the macroeconomic policy.
According to the forecasts of the CPB, the Dutch GDP will grow with 2.8 percent in 2018 and 2.5 percent in 2019. However, the average growth rate of the GDP over 1970-2008 was 2.6 percent. Even when one takes the aging of the population into account or looks at the GDP per capita or the GDP per potential employer, the growth is still not much higher than the historical average. On top of that, the growth rate will even fall below historical averages after 2019. This is odd, considering the numerous windfalls the Dutch economy got over the last years. The government conducts stimulating policy, the economy is catching-up, the monetary policy is still expansive and rising share prices and house prices have a positive wealth effect. In the light of these large windfalls, and despite some risks such as the Brexit, the growth rate is thus noting more than moderate. A growth of 3.5-4 percent would have been more appropriate.
This moderate economic growth can be the result of secular stagnation, a long-term liquidity trap, which persists even though the nominal interest rate equals zero. Economies can have a negative real natural interest rate as a result of structural factors which increase the supply of savings and reduce the demand for investments. Examples of such structural factors are the aging of the population, inequalities in income and wealth, debt reduction or a slowdown in productivity growth. A negative real natural interest rate thus causes large macroeconomic problems.
Such rates therefore can not be the new 'normal'. Indeed, they ask for onorthodox policy measures in order to prevent chronically low growth and inflation, such as a wider fiscal policy, an adjustment of the EMU-criteria for debt and government deficits, higher inflation targets and an unconventional monetary policy of the ECB. However, there is aversion to such policies. And that is most likely the explanation for the fact that Dutch policymakers have ignored the issue thusfar and that they now wrongly praise the Dutch economy.