President Klaas Knot of De Nederlandsche Bank warns against “too much optimism too soon” about the falling gas price. He does think that inflation in our country this year will not be as high as last year.
According to Knot, if the Netherlands ends up in an economic recession, it will be a “very mild recession”. And that’s “nothing to really worry about,” he said in WNL on Sunday.
“Right now it looks like gas prices are coming back a bit,” Knot noted. But it is not yet clear whether this downward trend will continue. “The gas stocks have to be filled again later this year for next winter. We can no longer do that with Russian gas. Last year we were still able to do that. So let’s hold back for a while.”
‘Energy price will not rise as fast’
Still, he thinks that energy prices will probably not rise as fast as last year this year. On average, inflation will drop to 5 or 6 percent this year, Knot estimates. This means that life in the Netherlands will become 5 or 6 percent more expensive this year than last year.
By way of comparison, in 2022 prices rose by 10 percent. But according to Knot, the expected 5 or 6 percent is still much too high.
The DNB president also notes that inflation has broadened. Not only energy is more expensive these days, also for example the hairdresser and the butcher.
According to Knot, the European Central Bank (ECB) will therefore have to raise interest rates in the eurozone several times. Higher interest rates make borrowing more expensive. As a result, consumers and businesses will borrow less. This in turn leads to less demand for products, causing prices to fall.
‘Several ECB interest rate hikes necessary’
According to him, the Dutch can assume that interest rates in the eurozone will rise by half a percent in both February and March. And “something will follow in May and June as well,” said Knot. He is one of the policymakers at the ECB. He did not say how big those interest rate steps will be, and when exactly he expects them. “But it’s clear that we’re not done yet.”
A recession is when there is economic contraction for two quarters in a row. Because there was a contraction in the Netherlands in the third quarter of last year, Knot does not rule out a recession. The figures for the fourth quarter have yet to be released.
But according to Knot there is also a “real chance” that the Netherlands will avoid a recession. He saw that consumers already let their money roll quite a bit in December.
