Frank Heemskerk Minister For Foreign Trad College Tour

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Frank Heemskerk Minister For Foreign Trad College Tour

  1. 1. From economic crisis to strong, sustainable and balanced growth Frank Heemskerk Minister for Foreign Trade Vrije Universiteit, Amsterdam November 4, 2009
  2. 2. The Netherlands in the world economy Countries sorted by exports of goods, 2008 (billions of USD) Countries sorted by inward FDI, 2007 (stocks, billions of USD) Germany VS China UK VS China Japan France The Netherlands Belgium France The Netherlands Italy Germany Russia Spain Belgium Canada UK Italy 0 200 400 600 800 1000 1200 0 500 1000 1500 1750 2250 Source: OECD Source: UNCTAD
  3. 3. The Netherlands: small country, big business The 16th economy in terms of GDP The 7th investor in the world The 6th largest receiver of FDI The 5th exporter of goods The world’s 3th agricultural exporter
  4. 4. From crisis to sustainable growth: outline 1.  The great recession 2.  Challenges for the Netherlands 3.  International and domestic policy options
  5. 5. 1. The great recession
  6. 6. Savings find way to US Balance on current account Balance on current account % of GDP Billions of US dollars 25 500 Developing Asia 20 250 Middle East Middle East 15 0 10 China -250 5 -500 0 US US -750 -5 -10 -1000 2002 2004 2006 2008 2002 2004 2006 2008 Source:IMF
  7. 7. Correction housing market US Housing prices US (% change, year on year) 20 -15 10 5 Purchase only (FHFA) 0 -5 -10 10 City composite -15 (Case Shiller) -20 1990 1995 2000 2005 2010 Source: CPB
  8. 8. Correction stock markets 9
  9. 9. Tensions in the money market Spread between 3-month Euribor and Eonia-swap Basis points; weekly averages 200 160 120 80 40 0 jan -07 jul -07 jan -08 jul -08 jan -09
  10. 10. Confidence collapses
  11. 11. Sharp downward trend world trade World trade - volume % change 20 10 10 5 0 0 -10 World trade (month on month, rhs) -5 World trade (year on year) -20 -10 Source:CPB 03 05 07 09
  12. 12. Public sector bears the burden Ten-year government bond yield spreads against Germany 5 years Credit Default Swap rates Percentage points Percentage points 3,0 400 360 2,5 320 280 2,0 240 1,5 200 160 1,0 120 80 0,5 40 0,0 0 jan/08 apr/08 jul/08 okt/08 jan/09 apr/09 /09 jan/08 apr/08 jul/08 okt/08 jan/09 apr/09 /09 Greece Ireland Austria Belgium Ireland Austria Belgium Germany Source: Thomson Financial. Calculation MG Source: Thomson Financial.
  13. 13. Large fiscal stimulus packages Composition of fiscal stimulus measures G-20 countries (% of GDP) 2.0% corporate income tax indirect taxes Percent of GDP (PPP Weighted average) personal income tax corporate income tax 1.5% other indirect taxes expenditure measures personal income tax strategic sectors housing other 1.0% expenditure measures safety nets strategic sectors housing safety nets 0.5% infrastructure infrastructure Source: 2009 2010 IMF 0.0% unidentified measures unidentified measures
  14. 14. Composition of fiscal stimulus measures NL (% of GDP) 0.6% Stimuli by local governments FES projects Liquidity for business 0.4% Stimuli by local governments Infrastructure and construction Liquidity for business 0.2% Infrastructure Sustainable economy and construction Sustainable economy Employment Employment Source: 0.0% 2009 2010 Miljoenennota 2010
  15. 15. Development estimated budget balance (NL) 2009 2010 Budget balance Miljoenennota 2009 (Sept '08) 1,2 0,8 Revenues -4,1 -5,3 Revenues from sale of natural gas -1,0 -0,6 Expenditure unemployment benefits -0,3 -0,8 Stimulus packages -0,4 -0,5 Interest expenditure -0,2 -0,2 Budget balance local governments -0,6 -0,7 Other -0,6 1,0 Budget balance Miljoenennota 2010 (Sept '09) -4,8 -6,3 % of GDP Source: Miljoenennota 2010
  16. 16. Spillover effects Dutch financial institutions significantly exposed to (risky) assets abroad Netherlands heavily depended on world trade => Stock management fuels world trade dynamics Consumer and producer confidence hit by world wide turmoil
  17. 17. Spillover effects Consumer confidence NL Balance of positive and negative answers (seasonally adjusted) 40 20 0 Propensity to consume (subindicator) -20 Consumer confidence (total) -40 Economic climate (sub-indicator) Consumer confidence (total) -60 Economisch climate (sub-indicator) Propensity to consume (sub-indicator) -80 Source:CBS 05 06 07 08 09
  18. 18. 2. Challenges for the Netherlands 19
  19. 19. World economic outlook has recently improved – somewhat IMF estimates world GDP to increase by 3% in 2010, after contraction by 1.1% in 2009 Mainly driven by developments in emerging economies - China +9% in 2010, India +6.4% Weak recovery in advanced economies - US +1.5% in 2010, euro area +0.3% Risks to the outlook skewed to the downside
  20. 20. Outlook for the Netherlands: major challenges CPB forecast NL 2010: No recovery (economic growth 0%) Unemployment rate to increase (to 615 thousand people, or 8% of the labour force) Budget deficit to widen (to 6.2% of GDP) Government gross debt ratio to rise (to 65.8%)
  21. 21. Unemployment rate and real GDP growth (NL) 9 6 8 3 7 6 0 5 -3 4 3 -6 94 96 98 00 02 04 06 08 10 Source: CPB Unemployment rate (% of labour force) Real GDP growth,(%), rhs growth rhs
  22. 22. Government gross debt and budget balance (NL) 80 2 0 70 -2 60 -4 -6 50 -8 40 -10 94 96 98 00 02 04 06 08 10 Source: CPB Gross debt (% of GDP) Budget balance, (% of GDP), rhs Balance rhs
  23. 23. Effect crisis on potential output/growth unclear Labour Capital Growth Total Factor Productivity
  24. 24. Potential growth scenario 1: Japan, 1991 45.000 potential growth before the crisis growth=3.1% GDP per capita (2008 US$ , PPP) 40.000 35.000 potential growth after the crisis 30.000 g=1.1% 25.000 20.000 15.000 Crisis 10.000 Source:OECD 1970 1975 1980 1985 1990 1995 2000 2005 2010
  25. 25. Potential growth scenario 2: Finland, 1990 40.000 potential growth before the crisis GDP per capita (2008 US$ , PPP) growth=2.2% 35.000 30.000 potential growth after the crisis 25.000 20.000 15.000 Crisis Source:OECD 1970 1975 1980 1985 1990 1995 2000 2005 2010
  26. 26. Potential growth scenario 3: Sweden, 1990 potential growth after the crisis GDP per capita (2008 US$ , PPP) 40.000 growth=2.8% 35.000 potential growth before the crisis 30.000 growth=1,6% 25.000 20.000 Crisis 15.000 Source:OECD 1970 1975 1980 1985 1990 1995 2000 2005 2010
  27. 27. 3. National and international policy options
  28. 28. Shanghai River, China 1980
  29. 29. Shanghai River, China 2005 30
  30. 30. Sheikh Zayed Road, Dubai, 1990 31
  31. 31. Sheikh Zayed Road, Dubai, 2003 32 Ministerie van Economische Zaken 11/9/09
  32. 32. A. Crisis policy still needed Dutch cabinet has taken action (I): Implementing stimulus packages (more than 7.5 billion euro = 1.3% of GDP, 2009-2010) Allowing automatic stabilizers to play fully (more than 60 billion euro = ± 10% of GDP, 2009-2010)
  33. 33. Increase of public debt largely driven by interventions and automatic stabilizers Decomposition of NL government gross debt dynamics (% of GDP) 16 12 8 4 0 -4 -8 08 09 10 11 Budget balance Interventions financial sector Source: Denominator effect Other financial transactions Miljoenennota 2010 d(debt ratio)
  34. 34. Dutch cabinet has taken action (II): Investing in social coherence and sustainable economy Implementing structural reforms (e.g. raising retirement age) Ensuring long term sustainability of public finances Tackling protectionism and promoting world trade
  35. 35. Special focus on trade promotion Additional resources to export credit guarantees schemes Trade credit insurance is a useful tool for firms to insure against the risk of late or non-payment and stimulates exports Economic diplomacy E.g. economic missions, trade promotion, facilitation of cross border investment Stress need to avoid protectionism E.g. in context of EU/ G-20
  36. 36. Special focus on trade promotion “Trade conflicts breed non-cooperation, suspicion, bitterness. Nations which are economic enemies are not likely to remain political friends for long.” Harry Hawkins (1944) Director Economic Affairs Office of the U.S. Department of State
  37. 37. B. Need to reform global economic governance (I) Improving (international) regulation and supervision Raising capital requirements Establishing framework for cross-border crisis management
  38. 38. Need to reform global economic governance (II) Improving macroeconomic policy coordination Addressing global imbalances Strengthening voice & representation of emerging and developing economies
  39. 39. C. Need to move towards sustainable growth Corporate social responsibility a balance between people, profits and planet Compensation schemes in line with long-term performances Improvement of corporate governance Green trade to cope with climate challenges
  40. 40. Conclusions Greatest challenge to the world economy in our generation The public sector plays an increasingly important role Dutch government has taken decisive action to cope with (the consequences of) the crisis Need to move toward strong, sustainable and balanced growth
  41. 41. Discussion 1. Economists have missed the social and environmental dimensions of economic development 2. The public sector does and should play a bigger role in the economy 3. The Netherlands has a major role to play on the world financial stage (e.g. in G-20, IMF) 4. The costs of the financial crisis are equally distributed between generations 5. The Dutch cabinet has appropriately increased the retirement age
  42. 42. Discussion Economists have missed the social and environmental dimensions of economic development
  43. 43. Discussion The public sector does and should play a bigger role in the economy
  44. 44. Discussion The Netherlands has a major role to play on the world financial stage (e.g. in G-20, IMF)
  45. 45. Discussion The costs of the financial crisis are equally distributed between generations
  46. 46. Discussion The Dutch cabinet has appropriately increased the retirement age

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