Perspectives

Pension and climate challenges

st  
18  
EcoPerspectives // 1 quarter 2020  
economic-research.bnpparibas.com  
Netherlands  
Pension and climate challenges  
Economic activity may have substantially weakened in Q4, due to the slowdown in world trade and the nitrogen and PFAS problems.  
Fiscal policy should become very accommodative, although it remains doubtful if the government will succeed in implementing all  
the spending plans. Growth is likely to slow this year, before picking up in 2021 on the back of a stronger global economy. However,  
climate challenges and labour shortages continue to weigh on activity in particular in construction. Moreover, pensioners may face  
severe cuts because of the deteriorated financial situation of the pension funds.  
1- Growth and Inflation  
Sharp decline in activity in Q4  
GDP Growth (%)  
Inflation (%)  
Since July 2018, the Statistics Netherlands business cycle indicator  
has been weakening. Until recently, this was not evident in the hard  
data. Economic growth held up reasonably well. In Q3, GDP growth  
amounted to 0.4%, virtually unchanged since the mid-2018.  
Forecast  
Forecast  
3
.0  
2
.7  
2.5  
However, early data indicate that activity came to a sharp halt in Q4.  
In November, industrial production declined by 1.1% from the  
previous month. This is partly attributable to the slowdown in world  
trade. Moreover, activity in the construction industry was severely  
impacted by the nitrogen crisis, following the High Court decision  
that the government's rules for granting permits for construction and  
farming activities that emit large amounts of nitrogen breached EU  
law. In addition, the construction sector was affected by the  
sharpening of the PFAS norms. The main effects of these problems  
on activity are expected in 2020 and 2021.  
1.8  
1
.7  
1.6  
1.6  
1
.5  
1.3  
1
.2  
1
7
18  
19  
20  
21  
17  
18  
19  
20  
21  
Source: National Accounts, BNP Paribas  
Uncertain times ahead  
Also the labour market data indicate that activity is slowing. In  
August, the decline in the unemployment rate came to a halt at  
GDP growth is set to slow to 1.2% this year, due to slowing world  
trade growth and important delays in construction projects because  
of the nitrogen and PFAS problems. Assuming a smooth Brexit  
process and a calming of international trade tensions, economic  
growth could accelerate to 1.5% next year. Inflation is set to fall to  
3.5%. Nevertheless, labour market remains exceptionally tight. As a  
result, negotiated wages rose by 2.9% in 2019, a highest for a  
decade. The effect on consumer prices was limited. In 2019,  
inflation increased to 2.7% from 1.6 % a year earlier, but this was  
due to an increase in the reduced VAT rate by 3 points.  
1
.6% in 2020 and could rise moderately in 2021, as higher labour  
costs spill over in consumer prices. A major domestic risk is the  
extremely low interest rate environment, which has weakened the  
financial position of pension funds. Some of them may be forced to  
cut their payments. Moreover, it will also affect pension claims of  
future generations.  
Important delays in investment projects  
Fiscal policy is set to become more accommodative in 2020.  
According to the budget, government expenditure will rise by 0.6%  
of GDP, mainly due to the implementation of agreements on climate  
and pensions. In addition, the taxes will be lowered, in particular for  
households. Government finances will remain in surplus, but the  
structural balance is set to deteriorate by 0.7% of GDP. However, it  
remains questionable if the government succeeds in stepping up  
infrastructure spending. Investment projects have suffered delays  
because of the tightness of the labour market and long preparation  
procedures, which have been further complicated by the recent High  
Court decision.  
At the presentation of the budget, the government also announced  
the setting up of an investment fund in order to benefit from the  
negative interest rates. It is generally assumed that the Fund could  
generate EUR 50 billion in investment projects, most of it financed  
by institutional investors.  
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