After enjoying a strong expansion during the past two years, the Dutch economy softened in early 2008, reflecting tighter international financial conditions and slower world trade. Growth should remain moderate in the near term, followed by recovery in the course of 2009, bringing the pace of growth back above potential. Despite the softening of activity, the output gap should remain positive in the near term and widen thereafter. Labour shortages are likely to persist, partly reflecting population ageing, implying that core inflation is expected to edge up.