The Dutch economy is relatively crisis-proof

mathijs boumanThe gloom merchants were wrong: the Dutch economy did better than expected, writes economist Mathijs Bouman.

At national statistics office CBS they work with a pencil in one hand and an eraser in the other. They meticulously enter the economic growth figures in their note books only to start adding and subtracting all over again. The old figures are erased and a new set is pencilled in ready to be erased again until, at long last, the figures are entered in indelible ink.

It’s a bit of a pain for journalists who are trying to make sense of the figures for readers. The first so-called flash estimate of GDP growth which comes out about a month and a half after each quarter gets a lot of coverage in the media. Journalists interview economists about disappointing/promising growth figures, ministers are asked if they will impose extra cuts while the opposition prepares for a good moan about an ‘economy destroyed by cuts’.

Fast forward another month and a half to the first proper growth estimate. If it deviates from the flash estimate the newspapers will report it on the inside of page 5. Subsequent CBS updates hardly make even the smallest of headlines. When, some two and a half years later, the definitive figures are published not a soul is interested.

And that is how it should be. Newspapers are for news, not economic history. The growth rate of two and a half years ago is seldom relevant for the here and now.

Waves

But sometimes it is. The economy has been in such choppy waters for the last seven years that it was hardly possible to predict even the present. The banking crisis, plummeting house prizes, the threat of a broken up Eurozone and the huge cutbacks and tax hikes, each with their own momentum, buffeted the Dutch economy from all sides, like a little boat in a pool full of unruly children. Economists and statisticians were hard put to ascertain where the boat would be heading next, and if indeed it wouldn’t be sunk by the next wave.

Now that the children are playing quietly and the economy is on an even keel it makes sense to look back. Last week the CBS published its latest estimates for economic growth in 2013 and 2014. They show that the recession in 2013 was not as deep as predicted while the 2014 recuperation was much stronger.

Earlier the CBS had already adjusted the figure for economic shrinkage in 2012 from 1.6% to 1.1%. Now the GDP shrinkage for 2013 has been reduced from 0.5% to 0.2%. Production turned out to be higher for trade, IT services and business services and consumption was higher. That means results for every quarter were better than expected. The Netherlands may have been stuck in a very unpleasant recession but it was not quite as deep as was previously thought.

In 2014 GDP was growing again, not by 1% as was predicted earlier but by a sturdy 1.4%, enough to compensate for the recession of the previous two years. Things in the building industry were picking up, consumption went up and international trade was doing well.

No downward spiral

With this positive adjustment the story of ‘an economy destroyed by cutbacks’ was no longer credible. In 2013 and 2014 in particular the government put on the brakes. Cutbacks and tax hikes from previous cabinets, the present cabinet’s own policies and extra budget accords amounted to billions worth of cutbacks during these two years. Many economists feared the Dutch economy was heading for a downward spiral, with new economic setbacks negating the effects of the cutbacks.

Looking at the definitive CBS figures it is now safe to say that those fears were exaggerated, to say the least. The economy rallied in spite of the cutbacks. Granted, it would have rallied sooner without the cutbacks and tax hikes but the economy was anything but destroyed by them.

And that is a conclusion that can be entered in the books in good black ink.

This article appeared earlier in the Financieele Dagblad