THE HAGUE, Jan. 26 (Xinhua) -- The strict measures introduced by the Dutch government to combat coronavirus coupled with a higher-than-expected inflation rate are bound to lead to a lower-than-expected economic growth in the Netherlands in 2022, analysts said.
"Our forecasts for the Dutch economy have been revised downwards, but we don't expect permanent damage to the economy," Hugo Erken, head of Netherlands Economics at Rabobank, told Xinhua.
According to Rabobank's latest forecasts, the Dutch economy is expected to grow by 2.6 percent in 2022, down from 2.9 percent previously projected.
"The effect of the current lockdown is negative, but smaller than previous lockdowns," Marcel Klok, a senior economist at the Dutch financial corporation ING Netherlands, told Xinhua.
ING also revised its gross domestic product (GDP) projections downward "because of the intensification during December of the lockdown measures," Klok said.
Erken said that the lockdown measures, introduced over the Christmas and New Year period to contain the Omicron coronavirus variant, have been especially strict on several sectors.
"Hospitality, essential shops, service providers, such as hairdressers, barbers were closed, meaning their economic activity was practically zero," he said.
The stricter coronavirus measures, which were partially lifted in mid-January to allow non-essential stores, hairdressers, gyms and other service providers to reopen under strict conditions until 5 p.m., are expected to take their toll mainly in the first three months of the year.
Both Rabobank and ING expect the Dutch economy to shrink during the first quarter of 2022. Rabobank expects a one percent GDP decline, whereas ING foresees a 0.8 percent drop.
Yet both expect a strong rebound in the second quarter of this year. "For the entire year, we currently predict a 3.3 percent GDP growth. This assumes a significant rebound in the second quarter of 2022," Klok said.
"Public COVID-19 support measures for employment, businesses and income were reintroduced until the end of the first quarter, which helps the country achieve economic stability," Klok said.
"Losses will be fully compensated in the second quarter with a strong rebound of 1.1 percent. At the end, we will not have a weaker economy due to the lockdown," Erken said.
However, it is not only the stricter coronavirus measures that are dampening economic growth. The higher-than-expected inflation rate, i.e. the increase in the average price level, also has a negative effect.
"Energy prices, notably gas and electricity, have been volatile lately and are still at a high level, causing most of the recent high consumer price inflation rates," Klok said.
The country's harmonized index of consumer prices stood at 6.4 percent in December -- a level not seen in decades. But Erken expected "the contribution of energy prices to completely diminish by September or October this year, even if gas prices remain high."
The Rabobank economist cautioned that as manufacturers have to deal with higher costs due to the higher energy prices and supply chain disruptions, product prices are on the rise.
"Food prices have gone up in the Netherlands, people are paying more in the supermarket, and the prices of furniture, electronics and air tickets have also gone up," Erken said.
Inflation is expected to average 3.4 percent for the whole year of 2022 in the country. "We haven't faced this kind of inflation in several decades," Erken underlined, predicting a loss of purchasing power for households until 2023.
The new government's spending plans, which include tax breaks for middle income families and a higher minimum wage, are set to be implemented later this year. The government has also pledged to "significantly" increase public spending on climate measures, innovation, science and education, which is estimated to generate around 0.5 percent of additional growth per year.
"In the short run, we do not expect too many of these plans to feed into economic activity. These are generating additional economic activity in the longer run only," Erken said.
Apart from a higher inflation rate, the rapidly increasing prices on the housing market are seen as potential setbacks to the growth of the Dutch economy, Erken noted.
"The labor shortage is also a problem," he said. "It imposes restrictions on manufacturers, and it is difficult to see how it will be solved," Erken said.
According to Klok, the other possible hurdles for the Dutch economy include the global supply chain disruptions and the high transportation costs, but the pandemic remains the top problem.
"COVID is still the main risk. The new variants turn out to be more dangerous than the existing ones," Klok said.
Overall, Erken underlined that "the Dutch economy has remained strong." Rabobank expects the final GDP growth of the Netherlands to be 4.5 percent.
The main contributors to this growth have been trade and manufacturing. "Manufacturing has been performing quite well also because we have a couple of big champions in certain sectors that have even benefited from the coronavirus crisis," Erken said, citing the "skyrocketing revenues" of semiconductor manufacturer ASML.
"Demand for semiconductors has been surging during the pandemic," the Rabobank economist noted.
The Netherlands-based multinational reported net sales of 18.6 billion euros (21 billion U.S. dollars) in 2021, up from 13.9 billion euros (15.7 billion dollars) the year before. ■