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Geopolitical tensions put the economic recovery at risk.
Monday, 15th September 2014
Source : Rabobank

Geopolitical tensions in Ukraine and the Middle East are increasingly putting the global economic recovery at risk, the Dutch economy is also feeling the effects of this.

In particular, the exports may come under (further) pressure, for instance if the conflict with Russia escalates. If this does not happen, the Dutch economy will show limited growth in the rest of 2014, with GDP volume increasing by ½%.

Household consumption will also rise next year, and the Netherlands could see GDP growth of 1 ½%. This is the message from the Rabobank economists in their Quarterly Economic Report published today.

“The Dutch economy will slowly begin to benefit from increasing consumer spending. In this and next year, households will finally have slightly more disposable income as a result of low inflation and government policy. The recovery will also be felt in the domestically oriented sectors, such as retail, hospitality and personal services”, says Rabobank economist Theo Smid.

“Families will however continue to pay down debt, which will keep the rate of consumption growth low. Next year however, consumers will play a bigger role. There will be more jobs, so that unemployment can decline from its rate this year, which is still high at 7%. Jobs will still be cut in the public sector, especially in health care.

Next year, we expect the unemployment rate to reach 6 ¾%, representing a small decline compared to this year. We also expect to see exports pick up in 2015 on the back of an acceleration in global economic growth. The outlook for our major trading partners has improved, and we expect businesses to invest more again in the coming years.”

European economic growth remains limited

For the eurozone, the economists expect to see GDP growth of ¾% this year, and 1 ½% growth in 2015. Rabo economist Michiel Verduijn: “This level of growth is still too low to create jobs on a significant scale, and the decline in unemployment will therefore be slow. Domestic demand is gradually picking up and this will contribute to growth, in both the northern and the southern member states.”

Russian sanctions are not the only risk factor for the European Union

The mutual trade sanctions arising from the conflict with Russia will affect the European Union, although the direct impact will be limited. Verduijn: “Exports of agricultural products to Russia by EU countries in 2013 amounted to only 0.18% of total goods exported by the EU. There are however indirect effects as well, such as the impact of a deterioration in consumer and producer confidence in Europe.”

The potential for higher oil prices constitutes a risk to world trade and thus the European economy as well. This arises due to conflict situations and unstable governments in several oil-producing countries, especially Libya and Iran. Verduijn: “In Iran, the negotiations with the US regarding Iran’s nuclear programme are of crucial importance in determining whether restrictions on exports of Iranian oil are removed or indeed tightened. If the negotiations fail, oil prices could rise significantly.”

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