The global economy is under pressure due to rising tensions, protectionist measures and structural challenges such as an ageing population. In an interview with the Dutch language monthly opinion magazine HP/De Tijd, monetary economist of Erasmus School of Economics Casper de Vries believes that the current economic uncertainty is disastrous, because it slows down investments and thus nips growth in the bud.
Medium-term recession likely
The reason is the erratic trade policy of US President Trump, whose import duties not only disrupted the markets but also caused widespread uncertainty. Professor Emeritus De Vries says: ‘Uncertainty is always bad for the economy, because it causes investments to lag, both by consumers and producers. And we also know that tariffs or trade barriers have a negative effect, especially if you stack them on top of each other. Together, that is disastrous.’
According to Casper de Vries, a recession is inevitable in the medium term. According to him, the ageing population, which leads to higher healthcare expenditure and increasing tightness on the labour market, but also the energy transitions have deep and long-term consequences for the economy, in the US, but also in most European countries, including the Netherlands.
Concerns about China and Germany
The economy is also starting to falter in countries such as China and Germany. De Vries: ‘China is currently still reporting growth of more than 5 percent, which raises the question of whether this is correct. Germany will have a hard time in the coming period anyway. They implemented structural reforms too late. And the new government is being held hostage by the SPD, which does not want to implement many reforms. Germany may well cause us more problems in the medium term than the US.’
Stimulus policy offers no solution
According to the De Vries, monetary policy, in which demand is stimulated by pumping extra money into the economy, is pointless: ‘That doesn’t work when the pie is shrinking, because you have to spend that pie on something else. Then it only increases inflation. The only thing that works is to tell people the honest story. One way or another: we have to tighten our belts.’
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For more information, please contact Ronald de Groot, Media & Public Relations Officer at Erasmus School of Economics: rdegroot@ese.eur.nl, mobile +31 6 53 641 846.
