Frank Heemskerk Minister For Foreign Trad College Tour
1. From economic crisis
to strong, sustainable
and balanced growth
Frank Heemskerk
Minister for Foreign Trade
Vrije Universiteit, Amsterdam
November 4, 2009
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. 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. From crisis to sustainable growth: outline
1. The great recession
2. Challenges for the Netherlands
3. International and domestic policy options
7. 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
8. 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
10. 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
12. 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
13. 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.
14. 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
15. 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
16. 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
17. 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
20. 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
21. 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%)
22. 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
33. 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)
34. 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)
35. 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
36. 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
37. 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
38. B. Need to reform global economic governance (I)
Improving (international) regulation
and supervision
Raising capital requirements
Establishing framework for cross-border
crisis management
39. Need to reform global economic governance (II)
Improving macroeconomic policy coordination
Addressing global imbalances
Strengthening voice & representation
of emerging and developing economies
40. 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
41. 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
42.
43. 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
