Does the COVID era mark an economic watershed?

Economic news often draws comparisons to the pre-COVID era. But do those years truly represent a break in trend, or are we simply back on the same upward path as before the pandemic? We called Charles Kalshoven, macroeconomist and expert strategist at APG, to find out.

Let’s get straight to the point: can COVID be considered an economic watershed?
“That depends on what you’re looking at. In the ten years leading up to COVID, average economic growth was about 1.7% per year. From 2020 until now, average growth has also been 1.7%. In that sense, it’s business as usual. Of course, the pandemic dealt a heavy blow to the economy, but we seem to have recovered from that hit. That said, not every sector has bounced back. Take train travel, for example. Due to the popularity of working from home, passenger numbers are still well below pre-pandemic levels, and Dutch Railways (NS) continues to suffer significant losses. Air travel also hasn’t returned to its former level—revenues are still down by more than a third compared to before COVID.

On the flip side, some sectors have grown faster in recent years than they did before, such as government, healthcare, sports and recreation, retail, and telecommunications. Just this week, the Dutch statistics office (CBS) reported that domestic and international tourists spent €111.2 billion in the Netherlands last year—nearly €6 billion more than in 2023, the first full year without COVID restrictions. The total added value to the Dutch economy is now nearly back to 2019 levels.”

The economic shock caused by COVID led to significantly higher government spending. What did that do to national debt levels?
“In the U.S., people received government-issued checks to ensure those who lost their jobs still had some income until they found new employment. In Europe, the focus was more on keeping people employed, with businesses receiving financial support. As a result, many Americans now have different jobs than they did before the pandemic, while more Europeans were able to stay with the same employer.

According to IMF data, government debt in developed countries initially rose by nearly 20% due to these support measures. Today, debt levels are only about 6% higher than in 2019. Emerging economies fared worse. They spent less—initial debt increases were ‘only’ 10%—but their debt levels are now nearly 30% higher than in 2019, as a percentage of national income. The Dutch government also spent heavily during the pandemic. However, because the economy and inflation have grown faster than the debt, the debt-to-GDP ratio has fallen to 44%. That’s well below the 60% maximum set by European budgetary rules.”

Are there structural changes in certain areas as well?
“Even though growth figures are similar to those before the pandemic, we’re now operating in a different economic regime. That shift isn’t solely due to the virus—it’s also influenced by the war in Ukraine and the tariff war initiated by Donald Trump. The Netherlands still experiences modest economic growth, but inflation and interest rates are clearly higher than they were pre-COVID.

During the pandemic, people spent less on dining out and services, which partly explains the high average savings in the Netherlands today. Meanwhile, demand for goods increased, causing bottlenecks in supply chains. Combined with the war in Ukraine and Trump’s tariffs, this has heightened awareness of national security and the importance of partial self-sufficiency.

Globalization’s major advantage is efficiency. Every country focuses on what it does best or cheapest, minimizing waste of resources and talent. It has lifted hundreds of millions—especially in China—out of poverty in a short time. But the past five years have also exposed globalization’s downsides. Efficient systems aren’t always resilient. For critical products like face masks or essential energy supplies, you may not want to rely entirely on the goodwill of foreign powers.”