Back to 2019 for a moment. We had never heard of COVID-19 before, but even then it was clear that we would start to see slower economic growth from 2020. Some economists even suggested a moderate recession predicted. Globally at least, noting that the Netherlands would be among the least hit countries. Partly because we were among the best performing countries during the boom and bust period of the previous years. We used that growth to build up buffers, should we be hit by that predicted slight recession. But then came corona.
Substantial but limited damage
During Budget Day, it was indicated that we would have the Strongest economic contraction since World War II go through, namely 5 per cent. Heady? Definitely. Very intense even! But compared to most countries around us we know how to limit the damage. Countries like Portugal, Spain and Italy face a contraction of up to more than 10 per cent.
Our strong economic position allows us to absorb this blow. Nevertheless, our budget deficit will increase sharply, unemployment will rise and we will really take a standstill have to make. Still, the government expects an average purchasing power increase of 0.8 per cent. There is no sitting still, but rather additional investment in healthcare, education, defence, environmental improvement, housing, justice, infrastructure and business. This should result in a Economic growth of 3.5 per cent in 2021. Obviously if the second corona wave is omitted or limited.
Hoping for additional state aid
And now for the practice. A number of sectors will be hit unprecedentedly hard in the coming months. Consider the travel, events and hospitality industries. A survey recently conducted by a credit insurer among insured companies (measured in a variety of sectors) shows a sales drop between 8 and 12 per cent. This includes companies from hard-hit sectors, as well as those experiencing robust growth.
The number of bankruptcies has increased slightly compared to 2019 but not yet alarmingly. The number of debt collection cases does increase and it seems likely that this will lead to a increase in bankruptcies in autumn and (early) 2021 leads. The credit insurers expect more claims to be paid at the end of this year and next year. Therefore, they are in talks with the Dutch government to extend the state aid they receive this year for 2021. This would be a huge boost for business. The cover provided by credit insurers is indispensable to maintain supplier credit. With the state aid, this coverage will be higher than without it.
Down with the doomsday scenarios!
So much for a sketch of the current situation. Now the key question: Should we be worried? If we are to believe the media, yes. Those serve up the soup glowingly, presenting the past few months one doomsday scenario after another. Of course, the suffering is great among companies directly affected by the corona crisis. But as harsh as it sounds, this is only part of our economy. Most of business is affected in a limited way.
Moreover, the Dutch economy is one of the strongest in the world. Again, relative to most countries, we will be hit the least hard. However, the billions in aid in recent months will force us to tighten our belts. Because that money will have to be paid back at some point. So prudence is certainly called for. There are companies that are not going to make it, so entrepreneurs should stay alert and be selective in supplying credit and guard against debtor losses to avoid getting into trouble themselves.
But besides realistic above all, remain optimistic! That contributes more to recovery than outlining doomsday scenarios. Where there are threats, opportunities always arise. And we Dutch are more capable than anyone else of turning threats into opportunities. So you will have to blow quite a bit - and in many cases perhaps quite a bit -. But after that, the corona soup is good to eat for most of us, I expect.
