CPB Report: Modest growth slowdown

After hitting a low point in the first quarter of 1999, export growth seems to be recovering reasonably quickly towards 5.75% in 2000. Private consumption growth is expected to weaken in the second half of this year. Nevertheless, the annual figure for 1999 will probably be a solid 4.25%. At an estimated 3.25%, next year's consumption growth will still come out above disposable household income growth, which is expected to expand by 2.5% in 2000.
Because of the lower output growth, the investment growth rate will fall. Business fixed investment is expected to go up by 2% this year and 1% in 2000. Next year residential investment is estimated to expand by 1.75%.
The labour market responds to the cyclical turnaround in output growth with a time lag, so that employment growth should still remain relatively buoyant this year: 2.25%. Next year the growth in employment will probably barely exceed that of the labour supply (1.25%), so that unemployment then will fall only fractionally, from 4% in 1999 to 3.75% in 2000.

World economy
The world economy is looking up. Asia moved into recovery late last year and the other regions hit by the financial crisis are expected to follow this year. This is one of the reasons why the West European economy is improving. Because a growth deceleration is projected for the United States, while Japan will not see a recovery, the acceleration in global growth will remain rather modest. World trade is expected to take off in the second half of 1999 and will increase by around 6% next year. International prices will rise over this period. But the outlook for inflation in the industrial countries remains favourable. In the European Union inflation is expected to be 1.5% in 2000. The estimated economic growth in the EU is 2.5%, while unemployment may continue to edge downwards to 9% in 2000.

What else in CPB Report 1999/3....
These forecasts of CPB Netherlands Bureau for Economic Policy Analysis are published in the September issue of CPB Report, and are in accordance with CPB's Macro Economic Outlook (MEV) 2000, published simultaneously. CPB Report (CPB's quarterly magazine, written in English) reviews quarterly the most recent CPB forecasts on the national and international economy, and highlights research activities. This issue contains articles on: the Berlin compromise of agenda 2000; an update of the generational accounts for the Netherlands; inter-industry wage differentials; the possible upcoming slowdown in Dutch economic growth; and tax policy and the labour market.

The Berlin compromise of Agenda 2000
In March 1999 EU politicians accepted a modified version of the Agenda 2000 reform proposals for EU agriculture, the so-called 'Berlin compromise'. CPB Report analyses the main consequences of this package. It discusses whether the reform measures will facilitate the upcoming WTO negotiations, and explores to what extent the reform measures contribute to the accession of the Central and Eastern European countries. It concludes that a deeper reform is needed to meet these challenges.
Moreover, a fresh look is needed on support for agriculture, recognising that agricultural commodities are produced in a landscape providing services that cannot be marketed in the traditional sense, like attractive landscapes, natural amenities and animal welfare. The real challenge for Agenda 2000 is to conceive of ways to place a value on these services without distorting agricultural product markets, and to design schemes to conduct the payments. This can also prevent industrialisation of agriculture and marginalisation of the countryside.

Generational accounts for the Netherlands: fiscal surpluses can help to compensate for ageing
In order to create the budgetary room for the higher future age-related expenditures without increasing taxes and social insurance contributions, Dutch government can decrease expenditure or interest payments. If public expenditure keeps pace with economic growth, fiscal surpluses of 1.5% GDP in the coming three decades will be necessary to compensate for the costs of ageing. This debt reduction shifts the future ageing costs from future generations towards the present generations.
Generational accounts that were constructed two years ago, have been updated. The new results indicate that the generational imbalance has become somewhat smaller compared to that found previously. This is due mainly to new demographic projections, which indicate that the population will age less than expected earlier. Higher expected labour force participation (especially of women) and additional taxed benefits from private pension schemes help to offset the adverse effect of ageing on the public finances.