August projections 2020-2021

CPB director, Pieter Hasekamp: ‘The Netherlands is affected less severely by the corona crisis than some other countries. But, make no mistake, the magnitude of the negative impact is unprecedented and, for the most part, still has to make itself felt. There will be a delayed impact in the form of unemployment and bankruptcies. Job and income security hugely differs between sectors. Moreover, now more than ever, it is important to look beyond GDP. Neighbourliness, family visits and home schooling cannot be captured in economic growth figures. The corona crisis also has major consequences for things that affect quality of life; we miss jubilee and wedding celebrations, theatres and concert halls remain empty, and there are great concerns about people in nursing homes feeling lonely’.

Static purchasing power will increase in 2020, as a result of already agreed wage increases, moderate inflation and cost reductions of, on average, more than 2%. In 2021, wage development and purchasing power increases will be more moderate. In interpreting these figures, however, it should also be taken into account that job dismissals and reduced earnings for the self-employed cause considerable income losses for large numbers of people, and that the government has taken on a share of the wage costs.

Public finances were hit hard by the financial support measures and lower tax revenues, but are in no real danger. Under these baseline projections, support measures will lead to an unprecedented budget deficit of 7% in 2020. In 2021, this deficit will recover to 4%. Public debt stabilises at 60% of GDP, in the baseline projections. In the case of a ‘second wave’ scenario, this will increase to 73% by the end of 2021, which would still be below levels that are considered risky. As a result, and given the cyclical situation, there are no obvious reasons for taking immediate measures to reduce the deficit.

On Prinsjesdag (the day of the King's Speech in which the main features of government policy for the coming parliamentary session are announced; this year on 15 September), CPB’s Macro Economic Outlook 2021 (MEV) will be published. The Outlook incorporates all decision-making regarding the 2021 budget. It will also elaborate on the corona crisis-related consequences for inequality. An update of the medium-term outlook will also be published on Prinsjesday, describing the expected economic developments for the coming cabinet period.