Dutch need higher wages to shore up economy as growth slows, IMF says

AMSTERDAM: The Dutch government and unions must try to boost people's wages, which have stagnated for years, to support the economy as years of above-average growth come to an end, the International Monetary Fund said on Thursday.

Economic growth in the Netherlands is expected to fall to 2.25 percent next year, an IMF research team said, after hitting decade-high levels of almost 3 percent in the past two years.

"The Dutch economy is doing well and public debt is dropping rapidly", IMF mission chief Thomas Dorsey told reporters. "But things can turn on a dime, as this is a very volatile economy."

Higher wage growth and equal rights for workers on permanent contracts and the self-employed would put the economy on a firmer footing, the fund said, and make it less dependent on swings in international trade.

The Netherlands has been one of Europe's top economic performers in recent years, after slowing almost to a standstill from 2008 to 2014. But the economic boom has not been matched by higher wages.

"Households remain highly leveraged and their consumption is constrained by stagnating disposable incomes", the IMF said in its yearly assessment of the euro zone's fifth-largest economy.

Real disposable incomes in the Netherlands have hardly grown since the turn of the century, as taxes have risen and companies have increasingly retained profits.

This has fuelled unrest among workers, and work stoppages ranging from supermarkets to elementary schools took the total number of strikes to its highest level in almost three decades last year.

The IMF urged the Dutch government to use its strong finances to lower labour tax rates, which would increase labour market participation and give a boost to wages.

But unions should also do a better job in demanding higher pay, Dorsey said.

"Unions seem to prioritise open-ended, rigid contracts for workers, while employers seem willing to pay more in exchange for more flexibility" the IMF economist said.

Meanwhile, risks for the Dutch economy are increasing, as rising global protectionism and a possible no-deal Brexit threaten to derail international trade, while rising interest rates could spell trouble for highly indebted households.

"The current benign circumstances should be used well", Dorsey said. "This economic recovery has been going on for quite some time, and although expansions don't die of old age, there will be a downturn at some point."