OECD warns economy could overheat

24th May 2007, Comments 0 comments

24 May 2007, AMSTERDAM – The Organisation for Economic Cooperation and Development (OECD) thinks that the Dutch government should be doing more to prevent the economy from overheating. This is contained in the OECD's Economic Outlook which was presented in Paris today. The organisation expects the world economy to show healthy growth in 2007 and 2008.

24 May 2007

AMSTERDAM – The Organisation for Economic Cooperation and Development (OECD) thinks that the Dutch government should be doing more to prevent the economy from overheating. This is contained in the OECD's Economic Outlook which was presented in Paris today. The organisation expects the world economy to show healthy growth in 2007 and 2008.

The OECD did warn last autumn that the economy in the Netherlands could overheat but is stepping up the urgency of its warning now. There is a good chance that inflation will grow too quickly because demand for products exceeds what can actually be produced,

In the report the OECD states that Dutch exports have been profiting from increased demand in the euro-zone. With the increasing competition companies have started to offer their products for the lowest price possible.

The Dutch economy showed growth of 2.9 percent last year. The OECD predicts similar growth this year. The Netherlands has a few lean years behind it but the economy is gradually accelerating into full swing now. As a result production in factories will reach maximum capacity at some point this year, the OECD said. This in fact means that growth will outstrip what the economy can actually handle.

In order to prevent this from happening the Dutch government should do its best to put a brake on the demand for products. A first step would be to keep its own expenditures in check. The government can also steer the growth of the economy by not introducing tax cuts. If taxes were lowered, people will have more to spend and demand will rise.

The OECD reported that the number of job openings in the Netherlands reached a six-year peak at the end of 2006. Wage increases remained limited however to about 2 percent. Inflation came to 1.8 percent on an annual basis in March, still an acceptable level within the euro-zone.

Further shortage on the labour market however could push up wage demands. This could boost prices on consumer goods. The OECD also urged the government to take more measures to get more people into jobs.

[Copyright Expatica News 2007]

Subject: Dutch news

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