The above causes will not yet cause a contraction in the second and third quarters of this year, due to strong domestic and external demand. But the economy is expected to cool down by the end of the year, which does increase the chances of two consecutive quarters of contraction and thus a recession.
Rabobank still expects the Dutch economy to grow by almost 3 per cent for the whole of 2022. For next year, Rabobank economists are counting on a contraction of 0.2 percent. The bank does not think unemployment will rise sharply due to the recession. Because of the tight labour market, Rabobank assumes that companies will probably remain frugal with their staff.
Gas boycott on Russian oil
In their estimate, Rabobank assumes that the European Union will impose a boycott on Russian oil from the end of this year. They expect energy prices to remain high or even rise a bit as a result.
The bank's estimate does not assume that the EU will stop importing Russian gas in the short term.
According to ABN AMRO, high energy prices, as well as other costs that remain high, will continue to drive inflation above 3 per cent next year. Money depreciation is the main factor threatening economic growth, according to the bank. With the war in Ukraine, Western energy companies are pulling their hands away from Russia.
Excise duty reductions
Measures by the government, such as cutting excise duties, will additionally ensure that some of the inflationary pressure we would actually feel this year will be transferred to next year. ABN AMRO further notes that inflation is high not only due to sharply fluctuating energy and food prices. A "broader basket of goods" is also creating price pressures. For instance, excluding energy and food prices, core inflation was 3.5 per cent in April alone.
European Central Bank interest rate hike
Economists further believe that the European Central Bank has no choice but to raise interest rates this year to curb inflation. In doing so, the bank assumes four interest rate hikes this year of 0.25 percentage point each. ABN AMRO explains that higher interest rates, in addition to inflation, are a growth driver. According to the bank, credit becomes more expensive and it is more costly for companies to invest, slowing down demand.
Rising costs will further make households more cautious about non-essential spending. This will only materialise later this year, as there is still catch-up growth at the moment. Furthermore, wage growth will pick up, but not enough to offset inflation. With that, purchasing power will decline.
Acting with confidence
This mild recession that is in progress is also impacting how you do business with your relationships. How reliable are your trading partners? Are they financially sound and able to honour agreements made? If you can answer these kinds of critical questions and analyse the right financial KPIs (critical performance indicators), you can trade with confidence. Economic risk factors cannot be eliminated, but by dealing with them in the best possible way, you can work responsibly to further expand your business.
Tracking risk levels
On your own, monitoring your customers and suppliers scattered across a variety of countries is not something an entrepreneur can do. A credit insurer can help you with this. It is their job to continuously monitor risk levels of countries, sectors and companies. They map the business environment globally. That is the core business of a credit insurer as a risk specialist. They also assess individual companies. Based on this, Xolv advises entrepreneurs on the safest way to do business. This increases your competitiveness while minimising exposure to default and insolvency.
More information
If you want to know whether credit insurance is right for your business, contact us without any obligation.
Source: FM.co.uk
