Is the Netherlands in a silent depression?

Published on: 14 December 2023

Current issues related to economy, (responsible) investing, pensions and income: every week, an APG expert gives a clear answer to the question of the week. This time: head economist Thijs Knaap on the question of whether the Netherlands is in a silent depression. His answer: “Exactly the opposite is true.”

All is doom and gloom in America; the country is in economic decline. At least, if you go by what the young people are saying on TikTok. Life “today” is compared to how it was in the 1930s. Back then, America was in a prolonged economic crisis during which many banks failed, people lost their homes and the stock market plummeted. Things are threatening to go that way now, too. Just about everything has deteriorated, according to young people: income, fuel prices, groceries, cars, homes. Online, there is even talk of a silent depression. Are they actually right? And what about in the Netherlands?

Lowest level ever
How are the Americans feeling? Knaap turns to the University of Michigan’s Consumer Sentiment Index. “Everything points to decline,” the APG chief economist instantly concludes. The index, which has been in use since the 1970s, assesses how consumers as a collective think about the economy at a given time. “The index was at its lowest level ever last June. That does indicate that something is going on, and that sentiment among Americans is very negative. Side note: Republicans are much less satisfied than Democrats. That has everything to do with the sitting president, Joe Biden. He is a Democrat, but I’m also seeing that Democrats are a lot less satisfied now than they were under the previous Democratic president, Obama.”

But does that mean that America is in a depression? “No,” Knaap says firmly. “In a depression, the economy is stagnant, unemployment is high and there is a lot of poverty. And that is not the case now. Roughly one in four Americans was unemployed in the 1930s; currently it's four out of a hundred. And yes, prices have gone up, but so have incomes.” He also points to poverty rates. “38 million Americans fall below the poverty line. That’s a lot, but proportionally half as many as in the 1950s, when they started using this index.”

So, why are the Americans so worried? Knaap thinks they are overestimating the situation. “People overestimate how bad things are now. They look at movies and series from earlier times, and see happy families living in big houses and driving beautiful Chevrolets. But that’s only half the truth. Rural poverty is hardly visible, if at all, in those movies and series, but there certainly was a lot of poverty in the country back then.”

Another possibility, Knaap thinks, is that today’s figures paint too rosy a picture. “But I don't really think so. This index was accurate then and still is now.” So, is it about inflation? “That could well be a reason for the somber mood. After all, we are not really used to inflation anymore in the Western world. Plus, the rising cost of housing is making young people insecure and makes them feel bad.”

They only see happy families living in big houses and driving beautiful Chevrolets

The debt crisis
The latter is also a factor in the Netherlands, Knaap notes. “Consumer confidence in the Netherlands is also low; very low. We have been monitoring this since 1986; the level at the end of last year was the lowest ever. Even lower than at the time of the debt crisis, a period when unemployment was much higher, among other things. There is no sign of that at all now. In fact, the opposite is happening. For example, poverty is low. 470,000 Dutch people live below the poverty line, which is ‘only’ 3.3 percent of the Dutch population. The economy is actually booming and jobs are there for the taking. As a result, we are experiencing inflation; the exact opposite of depression.”

But why do people still have less confidence and are feeling like they’re less well-off? Knaap can only guess. “Well, there’s inflation, and housing is crazy-expensive, forcing young people to live with their parents longer. People are also worried about migration; they see rising costs and that fuels the perception that things are going badly for them. This is also reflected in the election results; many people want things to change.”

Social media’s role
The role social media plays should also not be underestimated in this regard, Knaap argues. “When I see how young people get their news these days, it is mainly through platforms like TikTok. In general, these are not news makers with a journalistic background and attitude, who are hearing both sides of the argument. They throw numbers around, which are often incorrect. That can fuel erroneous sentiment.”

It is something the Netherlands is having to contend with, but so is America. For example, more than 40 percent there get all their news on TikTok. These are people who don’t read newspapers, or watch CNN or Fox. And if the trend on that platform is that the country is in a depression, well, then it's true. “But in fact, neither America or the Netherlands are doing badly. And yes, there is poverty and everyone knows someone who is not doing well. But to call that a depression, that’s really an exaggeration.”