The Dutch economy is doing too well, says Rabobank senior economist Nic Vrieselaar. And so a small recession is actually inevitable. “It may seem a little counterintuitive, but if you look at unemployment and job opportunities, you see that the economy is extremely overheated.”
According to Vrieselaar, Dutch unemployment is still historically low and last month there was also a notable decrease. “The number of vacancies is also decreasing, but it’s still very high,” he says. “The economy is extremely overheated, so it’s very difficult to keep growing. You soon run into – for example – staff shortages, so we are in fact already driving at 160 kilometers per hour on the motorway. So it’s hard to go faster and it makes more sense to downshift.’
‘On the motorway we drive at 160 kilometers per hour’
He is supported by Professor Arnoud Boot, who is anything but shy in the face of a possible recession. On the contrary: ‘A recession would be a victory,’ he says. “We’re really waiting for it.”
Inflation
Boot calls rising inflation an indicator of an impending recession. “And that’s the beauty of economics: everything is interrelated,” he continues. “The fact that there are no people in itself causes inflation.”
According to Boot, this means supply is limited, while demand has increased. For example, consumption has increased by ten percent in real terms over the past two years, according to the professor. “And that simply means inflation.”
Declining investments
Inflation causes, among other things, a drop in investment, also due to the higher interest rates that are applied. And the government shouldn’t do anything about it, argues Vrieselaar. “At most they should invest in housing, because it’s such a serious social problem,” she says. «But in principle this is the result of central bank policy. We have a massively overheated economy with lots of demand and little supply, so prices are high and rising.’
Raising interest rates is a way to slow down the economy, “and thus reduce the demand for borrowed money and therefore investment,” he concludes. “We see it happening now. It’s a risk, but I think the risk is mainly that the necessary investments are not going to take place, in this case the housing market. After all, we are dealing with a huge housing shortage.”
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.
