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IMF: Netherlands' Gross Domestic Product expected to reach 3.1% in 2018

Netherlands' Gross Domestic Product is expected to reach 3.1% in 2018, according to an International Monetary  Fund press release out Monday.

The Netherlands' economic recovery has taken hold. Real growth is forecast to reach 3.1 percent in 2018 owing to robust domestic demand. Private consumption has been supported by rising disposable income and positive wealth effects from increasing house prices. Net exports have proven resilient to global uncertainties, pushing up the already large current account surplus.

Unemployment has continued to decline rapidly, although most of the jobs have been created under temporary contracts or self-employment status.

Inflation has been low in the absence of wage growth, which has been lagging productivity gains. Credit growth has been gradually recovering for households, but remains negative for the corporate sector, signaling protracted deleveraging.

The banking system has continued to build up capital buffers to withstand challenges associated with the low interest rate environment and new regulatory constraints.

The economy is expected to keep its momentum in the coming years. Domestic consumption and investment are forecast to remain the main drivers of growth, prompting a gradual decline of the current account surplus.

Inflation should pick up as the economy reaches its capacity and wages increase. Some important risks loom in the horizon: foreign demand could be dampened by unresolved crisis legacies in EU countries, rising protectionist measures, and uncertain Brexit negotiations.

On the upside, improving labor market conditions, positive income developments, and a continued house price recovery would likely continue supporting consumption and investment.

In this favorable environment, the coalition agreement adopted in late 2017 by the new government lays out a broad-based fiscal expansion and an ambitious structural reform agenda. Reforms aim at strengthening the macroprudential toolkit to reduce household indebtedness and reducing duality in the labor market, thereby addressing challenges associated with weak wage growth.

 It also proposes reforming the second pillar of the pension system to promote more transparency and intergenerational fairness, while reducing pro-cyclicality.

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