Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: chief economist Thijs Knaap on the question of to what extent the Netherlands will feel the effects of Germany's economic problems. "To get a picture of the business cycle, the question used to be: 'How is the Ruhr region doing?' Now it should actually read, 'How are things on Wall Street?'"
In the land of the Wirtschaftswunder, business confidence is waning and big companies are threatening to move production abroad. Is the adage once again true that when Germany sneezes, the Netherlands catches a cold?
“Currently, the whole world is suffering from the same economic shocks, to one degree or another,” Knaap explains. “These include weak growth in China, high interest rates here and in the U.S. and the strong euro exchange rate. Then there are some more local shocks, which both Germany and the Netherlands have to deal with, such as high energy prices, rising wages and the transition toward a more sustainable economy. Even if there were no relationship at all between the Dutch and German economies, we are still facing the same shocks here under similar circumstances.”
These intense movements particularly affect industry. “However, the share of industry in the Dutch and German is declining. Partly because many production centers have moved to Asia, and partly because we are spending less and less on stuff and more on services.” This is good news, because it means that when industry goes bad, the entire economy is not immediately at a standstill, Knaap continues. “In the early 1990s, just after German reunification, industry still had a significant share of the economy there. That then dropped to about 21 percent. In the Netherlands, always more focused on trade than industry, it was about 19 percent in the mid-1990s and it’s 13 percent now."
Manufacturing is one of the most volatile sectors of the economy. Consequently, economists used to consider it the most important factor in the business cycle, or short-term fluctuations in economic growth. “But with the declining role of manufacturing, that rule of thumb applies less and less. However, with a 21 percent share, industry is still an economic factor of importance in Germany.”