The economic impact of a year of war in Ukraine isn’t bad if you look at the figures, says economist Arnoud Boot. ‘Unemployment in the Netherlands is lower than ever and consumer spending is high. Industry in several European countries is going through a difficult period, but the services sector is doing well on average.’
According to Boot, this is directly related to the fact that consumers are currently spending a lot of money. “After years of big boosts in the economy, both monetary and from governments, there is an unimaginable amount of money in circulation.” This keeps the economy going, but it also has a possible downside. “Sometimes it also pushes the economy over the cliff, it’s one of the causes of inflation.”
FREE money
Boot explains that high inflation is not only due to the energy crisis that erupted after the Russian invasion of Ukraine, but is also the result of effects that have been going on for years. “There has been a buildup of economic support, even in the years leading up to the Covid crisis. As a result, you can get inflation out of the bottle with just a few shocks.’
As an example, Boot cites 2019, according to him a year of “absolute economic boom”, a very good year for the economy. “Even in that year central banks weren’t willing to slow the economy, even then they were still supporting.” Boot saw much the same sentiment in the new coalition deal unveiled last year. “He knew of: money is free and we can solve everything with money.”
Underestimation
According to Boot, the problem of high inflation, caused by the huge amount of money in circulation, will still not be solved. “Central banks must recover the specter of inflation. This means that there are still interest rate hikes to come.’
He notes, however, that people tend to underestimate the economy’s ability to adapt to any crisis. ‘With Brexit, the Central Planning Bureau was quick to say it was going to cost us half a percentage point of growth a year. But that’s not right, the economy has adapted. It is therefore also politicians who tend to interpret such a shock heavily. And this is also what we saw in the war in Ukraine: as long as it is regional and remains regional, the consequences for the world economy will also be limited”.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
