DNB models high energy price impact on growth, inflation
De Nederlandsche Bank (DNB) has published two scenarios in its Spring Projections illustrating the potential impact of prolonged high energy prices. These models show consequences for inflation, economic growth, and unemployment.
Energy market strain drives scenarios
De Nederlandsche Bank (DNB) has introduced two scenarios, 'adverse' and 'severe,' in its Spring Projections to illustrate the potential economic impact of prolonged high energy prices.
Both models assume a sharp rise in energy costs, which ripple through the economy, increasing prices for transport, food, and other goods for households and firms.
This fuels financial market uncertainty, leading to more cautious lending by banks and higher interest rates, further dampening economic growth.
The scenarios differ in intensity and duration.
In the adverse scenario, energy prices peak in Q3 2026 and then decline.
The severe scenario forecasts an even sharper increase in oil and gas prices, which remain elevated for significantly longer.
A key assumption in both models is that governments and central banks do not adjust their policies.
Divergent paths for inflation and growth
The adverse scenario projects 2.9% inflation in 2027, remaining elevated in 2028, causing a slight economic slowdown.
Higher costs and uncertainty pressure purchasing power and investments, slowing international trade.
The economy cools, avoiding disruption.
The severe scenario forecasts a significant downturn.
Inflation peaks at 4.6% in 2027 and persists longer, with greater financial market uncertainty.
Economic growth slows considerably as demand falls.
Households tighten spending, firms postpone investments, leading to unemployment above 5%.
Global trade slows dramatically.
Second-round wage demands could keep inflation high.
Preparedness in an uncertain world
These DNB scenarios, while not predictions, offer crucial insights into potential economic vulnerabilities from sustained energy price shocks.
They highlight the critical role of proactive policymaker intervention, as central banks and governments would act to mitigate severe outcomes.
Ultimately, such forward-looking analyses are invaluable for enhancing resilience and informing strategic responses in a volatile global environment.