What will be the damage if the Dutch economy wakes from its coma?

BNR Nieuwsradio
Erasmus School of Economics

The Dutch Central Bank (DNB) presents statistics that were unthinkable before. DNB expects gross domestic product to shrink by 6.4 percent in 2020.  Bas Jacobs, Sijbren Cnossen Professor of Public Economics at Erasmus School of Economics, has not seen any surprising figures and calls the contraction incredibly miserable.

For this year, DNB is counting on the strongest job decline since the 1970s, which means that around four hundred thousand jobs may be lost. According to the central bank, unemployment will rise to 4.6 percent of the labour force in 2020. Because many companies will not start reorganising until next year, that percentage is expected to rise to 7.3 percent, which equates to seven hundred thousand jobseekers. The growth rate for 2021 is estimated at 2.9 percent and for 2022 DNB expects a positive growth rate of 2.4 percent. This recovery is far from enough to compensate for the damage.

Positive note

The figures are very uncertain because no one knows how long the pandemic will last or when a remedy will be found. Therefore, the central bank takes into account a base scenario, a mild variant and a gloomy one. The base scenario is used as a reference scenario and DNB keeps many reserves. Barbara Baarsma, Professor at the University of Amsterdam, argues that we should place the negative numbers in a positive light. Compared to other European countries, the effects in the Netherlands are still limited thanks to the good condition of our economy at the start of the pandemic and the partial lockdown that allowed parts of the economy to carry on as before. She also points out that even before the outbreak of the virus, the Netherlands was quite a digital country, in the sense that we are used to making online purchases and to work online. Finally, we have a relatively large aid package from the government, which compensates for part of the damage.

Slow recovery

The Dutch economy is taking longer to recover compared to other European countries. Our country is highly dependent on exports and therefore on the global economy, which is hit hard. World trade is slowly rising and so is our ability to recover. Jacobs points out that as an economist it is very difficult to foresee what the structural damage will be on the supply side of the economy. Due to the closure of various sectors, the belief of companies that a new normal is created with among other things a distance of 1.5 metres, and the belief that business models are no longer usable and that they should be reorganized, cause a decline in the supply side. According to Jacobs, the economy is now in a state of coma, so to speak, and it's impossible to say how much of it is remaining once we return to full strength. The damage recovers slowly, because a large part of the production capacity will simply no longer be there, states Bas Jacobs.

Professor
More information

Listen to the entire broadcast of BNR Nieuwsradio here, 8 June 2020 (in Dutch).