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22 March 2021 General

About a year ago this press conference was held remotely for the first time in the history of De Nederlandsche Bank (DNB).  Back then, we had no way of knowing that we would now be meeting virtually once again. Fortunately, we have all learned a lot since the outbreak of the COVID-19 pandemic. Whereas we could not see each other face to face a year ago, thankfully we now can, if only in two dimensions. And much more has changed besides. Last year we found ourselves vacillating between hope and fear, for we had little idea of what the pandemic would mean for us. Now there is more hope thanks to the gradual and measurable positive impact of mass vaccinations.

The pandemic has caused tremendous human suffering worldwide, far overshadowing the damage to the economy. We must nevertheless acknowledge that the Dutch economy suffered a record-breaking contraction in 2020. That said, it performed much better than we expected in the spring of 2020, which is wholly due to policy-makers and their response to the crisis. The economy itself also remained resilient. This is because it was inherently healthy before the pandemic struck. 


First, I would like to say a few words about our slightly revised outlook for the Dutch economy. In December we projected growth of nearly 3% for this year. At the time, however, we were expecting a gradual lifting of the social distancing restrictions at the start of the year. The restrictions have in fact become stricter since then. That is why we expect 2021 to be a year of two halves. The first quarter, we believe, will be marked by renewed contraction, of around 1%. Once the restrictions are lifted later in the year, we expect the economy to rebound strongly, similar to its performance in the third quarter of last year. Therefore, we still project gradually increasing economic growth. We expect growth to reach some 2% for full 2021 and 4% for 2022.

This hopeful prospect, which is in line with what we are seeing in neighbouring countries, is underpinned by a number of developments. World trade and industry are growing and appear to have become immune to the pandemic. Part of the services sector is particularly affected, mainly due to the rules on social distancing. These sectors should show recovery once vaccinations start to take effect, pressure on healthcare capacity eases and restrictions can be gradually lifted. Also, savings that were hoarded due to these measures will be released and boost spending once the economy opens up again.

This is a clear reminder of the fact that it was a virus that caused the current economic crisis. So there is no trade-off between a healthy economy and our own health. The economic crisis will only be fully overcome once the pandemic is under control. The economic damage would certainly not have been any less without the restrictions on our daily lives.

Lessons learned

Now that the mists are starting to clear, we are all eager to look ahead as we transition to recovery, but I still would like to mention two key lessons to be learned from this crisis.

First of all, the crisis has once again shown how important it is to build up buffers when the economy is healthy. The financial sector accumulated more and better buffers in the wake of the financial crisis of 2008/2009. This has so far prevented the crisis in the real economy from spilling over into the financial sector.

Moreover, Dutch public finances were in perfect health at the start of the crisis, meaning the government was easily able to absorb the economic blow dealt by the pandemic. In the event of an external shock such as a pandemic, the government has no choice but to act as the insurer of last resort. After all, there is no one else to take on this role. This is exactly what governments did, not only here in the Netherlands, but also elsewhere. In the Netherlands alone, aid worth over EUR 60 billion (just below 8% of GDP) has been granted so far.

As a result, we expect the Dutch budget deficit to reach some 6.5% of GDP in 2021, while the debt-to-GDP ratio will be just above 60%. While such a debt level is no cause for concern, it is important that the rising trend is halted once the pandemic has disappeared. With a new government about to be formed, it is vital to prevent a permanent hole in public finances. In line with the recent report by the Fiscal Space Working Group, it is therefore vital that we do not enter into structural commitments without first ensuring structural cover elsewhere in our nation's budget.

A second lesson to be learned is that in crises such as these, we must suppress the urge to keep our heads down, as reasonable as such a reflex might seem at first. The Dutch economy is a small and open one that can only flourish as part of a flourishing European Union and a confident player in an open world economy. So let's not wall ourselves in. Looking at the European Union, the common approach to the macroeconomic policy adopted following the outbreak of the pandemic has proved its added value. While governments – both national and European – provide a cushion for the economy, the European Central Bank is contributing to favourable financing conditions for citizens, businesses and governments alike.


I will now conclude. A full year after the pandemic broke out, we now clearly see light at the end of the tunnel. We will encounter many hurdles on the path to recovery, however. Let me briefly mention some of them.

Although the mist is clearing, uncertainties abound. Mutated virus strains that are vaccine-resistant could hobble efforts to defeat the pandemic, thus posing a new threat to our economy as well. Let this be a good reason for dealing the virus a decisive blow once and for all. Seeing that the virus does not stop at national borders, our vaccination efforts must not do so either. After all, you would still not want to be aboard the Titanic, even with a first-class ticket.

Now let me return to our country. As governments scale back aid packages, there will undoubtedly be businesses that are forced to close up shop. It is important that we prevent businesses that emerge from the crisis still essentially healthy from going under anyway due to excessive debts. We must also endeavour to ensure that bankruptcies do not result in overwhelming loan losses for banks. Because that could have dire consequences for the financial sector.

Looking beyond the COVID-19 crisis, the new government will face several thorny issues that cannot be further delayed. If we want our economy to be carbon-neutral by 2050, we need to make it more sustainable. The potential impact of climate change on the economy and financial stability is far greater than the impact of the COVID-19 pandemic, after all. Let's make sure that our recovery from this crisis is a green recovery. In conclusion, we feel the same sense of urgency with regard to the sorely-needed labour market and housing market reforms. In fact, these three issues deserve to be dealt with in separate sessions today.

We at DNB are often said to be cautious and not optimistic by nature. I would like to add a bit of nuance to that image by stating unequivocally that I expect next year's annual report press conference to once again be held live and in three dimensions.