If there is one economy that surprised me positively last year, it was the Netherlands. Honestly, who would have thought that Holland would hold up so well with inflation going through the roof like an exploding pressure cooker? Well, the starting point was clear. Those who had flexible gas contracts with their suppliers naturally drew the short straw last spring. Therefore, my admittedly "German" view was accordingly, uhh, now the Netherlands will have to keep all their money together to maintain their usual consumption for as long as possible. After all, consumer confidence plummeted and one negative record followed the next.

BUT: then the GDP release for the second quarter of 2022 came and although the Netherlands held the highest inflation rate in Western Europe, at the same time the economy grew faster than any other country from that region. What happened? Well, instead of seeing everything in black like the German neighbors, the motto of the hour was probably: now more than ever. In addition to global trade, which had regained momentum after the easing of COVID-measures, private consumption and investment were the main factors behind the strong growth. Although fewer goods were purchased, weddings and anniversaries were celebrated, parties were held and, of course, people traveled. As a Dutch friend once told me: we are 17 million inhabitants, but only a fraction is at home. If we're honest, that's also a perfectly normal reaction. Who knows what the future will bring. Between a pandemic, a war and gas shortages, I too preferred to take a vacation. As the year progressed, economic activity declined somewhat, but this was also due to the strong figures in the spring. No one can keep up this (party) level for long.

Will it stay that way? That is probably the quiz question of the year. It depends entirely on how many resources are still in the economy. Yes, inflation is pushing private consumption down, and there are many people who can no longer afford their usual purchases.

But: we don't know the number or potential purchasing power of these people in relation to the consumer group that can still consume well and has a lot of catching up to do due to the savings of the past years. Since it does not go down well socially to talk about big Christmas gifts in times of scarcity, these groups of people (and yes, I count myself among them) will not comment publicly. So, the potential for consumption is extremely unclear - especially when it comes to services that people have gone without in recent years. When I look at the booking figures at the ski resorts in Austria, there seems to be a lot going on from the Netherlands, at any rate. In any case, I am once again preparing myself for a wave of yellow license plates on the German autobahn. Companies could also bring forward their investment decisions in order to still complete their financing at acceptable interest rates. After all, the ECB is still in her rate hike phase. Still, a valid assumption would also be that the surprisingly dynamic economic figures cannot continue indefinitely, but that there will be a cooling of the economy (albeit less drastic) over the winter months and into the spring. This all depends on how much energy prices move. Instead, a rough awakening for Western Europe and thus also for the Netherlands could be more likely next fall, when gas storage facilities will have to be filled without Russia's help, and then the competition for resources will begin again, but their supply will be smaller this time.


It's amazing how people get used to risks, each of which would have deprived people of sleep in earlier times. But that is precisely the state of affairs in the 2020s. People learn to live with high inflation. Apart from the fluctuations caused by energy prices, consumer prices should continue to rise in the coming year for the time being, but at a much slower rate, as the government cushions some price increases via measures such as the energy price brake. This will then mathematically cause the inflation rate to fall, as this is always a comparison with the price increase of the previous year. Things are likely to get difficult in the coming fall and winter, however. If you thought that Germany had already bought up all available capacity like an octopus this year, then fasten your seatbelt for next fall. This in turn will support inflation. It will take some time for these two scales to settle.


The whole thing is being fueled by the retirement of the baby boomers from the labor market. With them, a host of experienced, hard-working and also frugal people are retiring, while the remaining, much smaller workforce now has stronger market power. This means that demands for higher wages and/or shorter working hours and other extras are much more likely to be implemented (who can blame the younger generations, who have grown up with so many crises and uncertainties). Thus, the increased price level will stay with us for quite some time. If, on top of that, the existing supply chain problems continue, it will be really difficult. At least there is a slight easing here. Due to the slow economic slowdown in Europe, global demand is falling and at the same time China is easing its Zero-COVID policy at least somewhat.


The state has been in constant action in recent years. The motto is "after the crisis is before the crisis." Although Mr. Rutte has really taken his time. While all around Europe, governments have adopted one measure after the next, in the Netherlands we first saw only a shrug of the shoulders, even though inflation was moving much faster than elsewhere. So the resilience of the Dutch economy also has its downside. Then, in September, there was a bit of a sweeping blow, with the classic best-of European energy measures such as an energy price brake or tax cuts and also an increase in the minimum wage. Government aid thus remains an important pillar of the economy in the 20s. At the current level of debt, this is still a sustainable strategy. However, it will be difficult if the coming years continue to be years of crisis. After all, the whole of Europe relies on the budgetary discipline of the Northern Europeans, and quite honestly, if the Maastricht criterion of 3% public deficit is broken again in 2023, that's understandable, but it doesn't really fit in with the reputation of the Frugal Four. And then there's Groningen. Anyone want to place bets on when it will really stop? I won't believe it until the gas tap is finally shut off.


The ECB also has its hands full now. While it has been on an expansionary course for the past 15 years, it has had to first take its foot off the monetary gas, then put on the brakes and finally go into reverse gear, practically on a fast track. There have never been so many and so large interest rate steps in its history. However, it would be a fallacy here to believe that the central bank wants to deliberately slow down the current economy in the Eurozone by raising interest rates in order to reduce inflation. This is also an effect, quite clearly - but the ECB is aware that the extremely strong inflation is not driven by strong economic power, but by external circumstances. No, the ECB's focus is on not squandering its credibility in the financial markets in order to keep long-term inflation expectations in the 2% target range. That, together with the euro's depreciation against the US Dollar, which is de facto an inflation import, is driving the monetary guardians in Frankfurt. In 2023, the game should continue in a weakened form, depending on actual economic developments, inflation and interest rate swings in the financial markets for over-indebted Eurozone countries. No one said the job would be easy.


The story of the insolvency paradox continued in 2022, at least initially. This describes an economic situation that should actually lead to higher corporate insolvencies but actually produces few bankruptcies. From the start of the war, when prices skyrocketed (i.e., as of March 2022), stories started circulating that the wave of insolvencies was coming, but now for real. On a sober note, at least for this year, a slow normalization can rather be attested for the Netherlands. Up to and including July, the number of corporate insolvencies (excluding self-proprietorships) was still at the extremely low level of 2021. From August onwards, there were some increases. Up to and including November, the number of insolvencies reached a year-on-year increase of 17%. That sounds like momentum, but not a wave. In fact, this is not even a normalization, because compared to the same time-period in 2020 and 2019, which also had very low numbers in a historical context, insolvencies were still 36% and 44% lower, respectively. Now, one thing is the number of insolvencies and the other is the damage from that. In Germany, for example, corporate insolvencies were also very low in number in 2020 and 2021. However, the damage from these was as high as it was last in 2009. In the Netherlands, however, the damage is also still within bounds. Here, too, a normalization is becoming apparent. For example, the number of jobs affected by insolvencies increased by 44% in the first three quarters of 2022 compared with the same period last year. Compared with 2020 and 2019, however, they are 56% and 65% lower, respectively. So, the paradox remains.


In summary, it can be said that times are as uncertain as in the past. Who knows if the war in Ukraine will escalate or if new negotiations will be more likely due to lack of resources? COVID could also come around the corner with a new aggressive variant or China could try to invade Taiwan. What is clear, however, is that one should never write off the Dutch economy prematurely, because it is more resilient than many believe. Or to put it in the words of the "poet" Lenny Kravitz: It Ain't Over 'Til it's over!



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