The latest Financial Risk Report published by the Netherlands Bureau for Economic Policy Analysis (CPB) states that, while the risk of the Dutch economy suffering from a mild recession has increased, it doesn’t pose a threat to the country’s financial stability.
Every year, the CPB assess risks posed to the Dutch economy, with this year’s Financial Risk Report largely focussing on the consequences of the coronavirus pandemic, Brexit, high inflation, the ongoing war in Ukraine and the ensuing energy crisis.
The CPB notes that the Dutch government’s decision to bring an end to the financial support measures put in place to offset the impact of the pandemic and the rising price of energy “at a time when there is still a great deal of economic uncertainty, does entail risks.”
The current “uncertain macroeconomic conditions” - largely brought about by uncertainties regarding interest rates and income flows - mean that “there is still a chance of a (slight) recession” in the Netherlands. “The risk of a new euro crisis remains due to high government debt and sharply rising interest rates, particularly in Southern Europe,” the CPB explains.
In spite of these risks, the CPB is confident that the financial positions of households, businesses and banks in the Netherlands are strong and stable enough to withstand any potential fallout. “The financial sector is sufficiently resilient,” says CPB chief Pieter Hasekamp. “The danger of a banking crisis in the Netherlands seems limited and the financial risks from the housing market are also manageable.”
What consequences will these uncertainties have on the Dutch housing market? Rising interest rates on mortgages have already resulted in falling house prices, but CPB points out that “the [average] financial position of homeowners has improved.” This means that households and banks are better positioned to absorb “negative shocks in the housing market”, such as further decreases in house prices.
For first-time buyers and low-income households, however, the conditions are less favourable. The CPB points out that these groups are “vulnerable” due to the fact that their financial positions “[have] improved less than that of the average homeowner.”
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