Imbalances on the Dutch housing market pose the “biggest stability risk” to the Netherlands, Dutch central bank DNB said in its latest Financial Stability Overview. The central bank also warned that a “disorderly Brexit” and the trade war between the United States and China can seriously damage economic growth.
The prices of houses in the Netherlands are still rising, albeit less rapidly than before, and the housing shortage continues. This makes it increasingly difficult for the average Dutch person to be able to afford a house.
According to DNB, the housing market has a great deal of influence on the Dutch economy. Over the past years the sharp price increases on the housing market gave the economic growth a major boost, while the price falls during the financial crisis exacerbated the economic downturn. “A possible new fall in house prices can have significant consequences for the Dutch economy and also for the Dutch banking system”, DNB said.
The risk to global financial stability is increasing due to low interest rates and ample liquidity ratios, the bank said. The financial markets are developing exuberantly and there is no incentive to reduce debts – which can cause a bubble and jeopardize financial stability if the sentiment changes.
Globally, debts are at a high level. The joint debts of households, non-financial corporations and governments stood at 230 percent of GDP in the third quarter of last year. At the end o 2005, they were around 200 percent. The stock markets have now largely recovered from the fall in prices late last year, which means that concerns about overvaluations and the risk of market reversal remain high, DNB said.
“Against this background, a sharp correction on the financial markets poses a risk to current financial stability.” According to DNB, such a market shift can be triggered by an unexpected adjustment of monetary policy or by a major crisis in a large country. The Dutch central bank referred to the trade war between the US and China, a hard Brexit, and the fragile economic and budgetary situation in Italy as potential triggers.