2002 OECD Economic Surveys: Netherlands 2002

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This 2002 edition of OECD's periodic review of the Dutch economy examines recent economic developments, policies and prospects and  includes special features on coping with population ageing and on productivity growth and the new economy.

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Assessment and Recommendations

After several years of rapid economic expansion with relatively little inflationary pressure, the performance of the Dutch economy has deteriorated markedly since early 2000. Real GDP growth is expected to fall to around 1½ per cent in 2001, compared with nearly 4 per cent on average over the 1997-2000 period. The downturn appears to have been primarily due to external factors, as is typically the case in the Netherlands. But the way it gathered momentum early 2001 suggests that the abrupt slowdown of the US economy and the fall in global stock markets may have directly affected the Dutch economy through household and business confidence. These negative effects have more than offset the impact of the introduction at the beginning of the year of a major income tax reform, which included a shift from direct to indirect taxes and entailed a sizeable one-off boost to disposable income. As measured by the harmonised index of consumer prices (HICP), inflation started rising rapidly in 2000 and further accelerated at the beginning of 2001 due to the increase in the VAT rate and environmental taxes in the tax reform. HICP inflation seems to have passed its peak, but at 5.0 per cent (year-on-year) in October 2001, it still remained among the highest in the euro area, and also very high by Dutch standards. Core inflation (excluding food, energy, government levies and indirect taxes) has increased less strongly but it has nonetheless trended up to nearly 4 per cent in the course of 2001, reflecting the pass-through of rapidly rising labour costs.

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