After the earthquake
12-6-2009 | Economic news
While the earthquake has passed, the aftershocks are still on the way and the damage has only begun to be inventoried. And the process of repairing the damage has not even started yet. This is more or less the situation in which we currently find ourselves. The global economy, which went into free fall from the fourth quarter of 2008, now appears to have reached calmer waters. There are even tentative signs pointing to the prospect of a gradual recovery. Rabobank's Chief Economist Dr. Wim Boonstra explains.
Should global trade once again start to pick up slightly, this would indeed clearly give the Dutch economy a boost. But the near-term outlook is still far from rosy. Unemployment in the Netherlands is set to climb higher in the coming period and this will have a further impact on domestic spending. Banks will be confronted with additional credit losses in the months ahead and this will place extra pressure on credit lending. The Dutch economy is expected on the whole to contract at the significant rate of approximately 6 percent in 2009 and is not anticipated to make a noteworthy recovery in 2010.
List of damages
Economic activity in the Netherlands is only expected to start picking up again gradually in the course of 2010. At that time the policy agenda will become increasingly dominated by the question of how to repair the damage. The list of damage will include themes such as a sharp rise in the government deficit, higher government debt, loss of employment, the increased loss of capital and the impending threat of inflation. The backdrop to the run-up to the next parliamentary elections in the Netherlands will consequently be formed by the issue of high unemployment and the limited financial scope for effectively combatting it.
Count our blessings
It is, however, important to bear in mind that, even after the Dutch economy has contracted by 6 percent, the Netherlands remains a wealthy country both in a historical perspective and in comparison to the rest of the world. During a period of adversity, it is more vital than ever to keep a cool head and count our blessings. This is because incorrect policy decisions concerning matters such as Europe, free trade and the operation of the market mechanism could in the longer term inflict more damage than the credit crisis. The future of the next decade will be decided in the months ahead. Will it be a period of structural sluggishness or one of strong recovery of growth? The Netherlands is at a turning point.
Dr. Wim Boonstra, Chief Economist Rabobank Group
Dr. Boonstra has published numerous articles on banking, financial markets, international economics and business cycles.
