The corona crisis seems to be nearing its end, and contrary to expectations at the beginning of the pandemic, the Netherlands is doing quite well economically. In an article by NOS, Bas Jacobs, Professor of Public Economics at Erasmus School of Economics, says he is very optimistic.
Permanent damage?
'Last year in the summer we saw that the economy recovers quickly if the measures are lifted. I think we will see such a quick recovery again this year. But for the longer term, the question is how permanent the damage will be.'
Rising prices
Central banks have pumped enormous amounts of money into the economy, allowing governments and companies to borrow more cheaply. Partly because of that policy, governments can easily borrow money and spend a lot. If people around the world also start spending more money, inflation can rise further. We are already seeing this happen, also in the Netherlands.
There is another cause for these rising prices. 'The global production chains have been disrupted by corona,' says Jacobs. As a result, we are already seeing the prices of wood, steel, chips and oil, for example, rise. Sea containers have become much more expensive and there is a global chip shortage due to lagging effects in the lockdowns at the beginning of the crisis.
The big question
According to Jacobs, it is difficult to say how structural inflation will be. 'It also depends on how permanent the damage in the economy is. Sectors have been hit, for instance the hotel and catering industry, tourism and the events industry. If sales stay low for a long time, or if demand rises a lot for a long time, the inflation rate can become structurally higher.' But it is also possible that the Netherlands will return to the pre-Corona period. 'Very mediocre economic growth, extremely low interest rates and very low inflation. This is the big question to which we do not yet have a good answer,' says Jacobs.
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The full article from NOS, 19 June 2021, can be found here (in Dutch).Â