UTRECHT, Netherlands, Dec. 7, 2004 (PRIMEZONE) -- Heemskerk: 'The foundations are strong, there is no reason for panic'
'The foundations of the Dutch economy remain strong and the economic conditions are expected to continue to improve in 2005. There is no reason for panic; we look to the future with confidence. The housing market, for example, is expected to develop stably and the outlook for the business community is relatively good,' said H. (Bert) Heemskerk, Chairman of the Executive Board of Rabobank, at the presentation of the 2005 economic outlook on Tuesday, 7 December. 'Economic growth will, however, continue to be moderate at 1-3/4% and will remain vulnerable due to the dependence upon an improvement in consumer sentiment.'
'Outlook ...' is the annual publication in which Rabobank economists present their forecasts for the year ahead. They expect the growth in the world economy to weaken somewhat in 2005. The U.S. dollar is expected to fall further in value and the stock exchanges are once again only expected to perform moderately in 2005. Rabobank anticipates that the Dutch housing market will continue to demonstrate moderately positive development in 2005.
Growth in world economy will slow down
Rabobank expects the growth in the world economy to weaken in 2005. The U.S. and Japanese economies will grow at a slower pace than in 2004. The U.S. economy is suffering the effects of the recent interest rate increases and the modest job growth. U.S. consumers are more vulnerable to interest rate increases due to a high debt burden and low savings quota. Interest rate hikes can also place house prices in the U.S. under pressure. European economic growth will remain moderate. Consumer spending, in particular, will recover at a very slow pace due to the income and job insecurity ensuing from structural economic reforms and an only gradual decrease in unemployment.
Interest rates will remain low and dollar will fall further in 2005
Mr Heemskerk said that while he expects interest rates to rise, they will still remain at a low level and will only increase on a limited basis. He expects the stock exchanges to once again perform only moderately in 2005 and foresees more or less flat development across the board. In 2004, the U.S. dollar fell further against the euro. Heemskerk believes there is a real chance that this development will continue in 2005. The large deficit on the U.S. current account of the balance of payments and the uncertainty as to whether foreign investors (including Asian central banks) will continue to finance this deficit place the dollar under pressure.
Foundations of the Dutch economy remain strong
Numerous alarming reports about the state of the Dutch economy have been circulating recently. Heemskerk does not, however, believe that these reports are justified. While there are indeed a number of issues that must be addressed, for example in the area of social security, the economic foundations of the Netherlands are generally strong. The Chairman of the Executive Board of Rabobank states the Netherlands' high labour participation and productivity rate in comparison to other countries as an example. He also remarks that the Netherlands is relatively well prepared to address the needs of an ageing population.
Possibility of stock exchange recovery in the Netherlands
In line with this, the profits of Dutch businesses, particularly in the industrial and trade sectors, will also rise moderately. The international character of Dutch listed companies does, however, mean that the development of the AEX is highly dependent on the dollar and oil prices. Rabobank is consequently primarily optimistic regarding the development of the Dutch section of the AEX, Midcap index and smaller funds. The bank believes that the Midcap index could rise to 450 points in 2005.
Dutch economy may pick up further in 2005
The Rabobank economists believe that the growth in the Dutch economy, that is expected to amount to 1-1/4% in 2004, could increase further to 1-3/4% in 2005. This does, however, mean that the growth will once again be below the historical average and will be vulnerable. The recovery of consumer confidence will have an important role to play. This recovery can be realised through a gradual improvement in the conditions on the labour market and the stability resulting from the conclusion of the Social Accord. Heemskerk believes that greater consumer optimism could lead to a decrease in savings, certainly in light of the sharp rise in the amount of money held in savings accounts in recent years.
Dutch housing market remains robust
While various parties have predicted that house prices would drop considerably in recent years, the Dutch housing market has maintained its robustness. Average house prices are expected to have risen by 3-1/2% in 2004. While this is partially due to non-recurring anticipation effects that ensued from the introduction of the additional loan regulation, Heemskerk remains positive regarding the prospects for the Dutch housing market in 2005. This is because interest rates will remain at a low level. In addition, the structural factors that support house prices, such as the inadequate construction of new housing, still remain in force. Rabobank expects house prices to rise by an average of approximately 2% in 2005.
The full report and additional background information are available on www.rabobankvisie.com