Never before have stock prices been so high, pension pots and piggy banks so lavishly filled, houses so expensive, unemployment so low and gross domestic product (GDP) so high, while the country still grapples with the excesses of a global pandemic.
The AEX rounds off the stock year with a record profit. The main index of the Amsterdam stock exchange is 28 percent higher on the last trading day of the year than at the beginning of this year, an unprecedented high annual return.
The economy is hampered from time to time by uncertainty about the impact of new virus variants, lockdowns and restrictive measures, but is actually growing strongly. Although it is socially unsettled and things are not going well in some sectors, and high inflation and zero percent savings interest consumers are playing tricks on us, but across the board things are going well and we are doing well, on average and on paper that is.
Unevenly divided
The economy has recovered strongly and is now doing better than in 2019, the year before the corona crisis started. GDP, the combined economic activity of the whole of the Netherlands, has never been so large, an estimated one a sloppy 850 billion euros (pdf).
And all this in the midst of a severe pandemic. “It is painful to see how unevenly the economic pain and uncertainty as a result of the pandemic are distributed. The economic lives of some entrepreneurs have been destroyed, others do not feel any economic pain,” notes Han de Jong, former chief economist of ABN Amro.
The CPB also states in the Macro Economic Outlook 2022 (pdf) that the trend of higher house, stock and other asset prices is a cause for concern as it leads to growing wealth inequality and poses risks to financial stability.
Lots of demand, too little supply
2021 has been the year of high inflation since the summer, and that takes some getting used to after years of low inflation. The extremely low interest rates and generous money policies of the central banks now seem to be driving inflation after years of little effect. “It is striking”, says De Jong, “how wrong most economists, including central banks, have misunderstood inflation.”
Anything and everything is becoming more expensive, especially energy. The well-functioning economy and more demand and catch-up demand require a lot of raw materials, production and transport. Factories and suppliers are finding it difficult to keep up, as factories and ports are hit by lockdowns and staff cut-offs and transport is still difficult. This leads to scarcity and shortages, and therefore higher prices.
Gas and electricity prices have increased fivefold in six months. According to De Jong, the high energy prices are mainly the result of a lot of demand and too little supply. He points out that the yield of wind energy was disappointing. In addition to scarcity and the energy transition, the geopolitical tensions surrounding Russia, Ukraine and Europe also play a role in energy prices.
Inflation usually fuels prices even more by accumulating higher prices and costs. “Inflation erodes purchasing power and is really bad for some people, and also for some sectors, such as greenhouse horticulture and energy-intensive industry,” says Han de Jong.
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