Credit crisis deeper but not as long as the crisis in the early 1980s

In crisis year 2009, the Dutch economy contracted more than ever before. The crisis was followed by a period of moderate growth (1.8 percent). The economy bounced back faster than in the early 1980s, when the state of the economy was also deplorable. At that time, the gross domestic product (GDP) decreased during two years in a row. Though deeper, the recent recession was also short-lived in comparison to the early 1980s. The components of the GDP showed different patterns in 2009/2010 than in the early 1980s.

Expenditure categories and GDP

Exports boost economy in 2010

The relatively fast recovery was mainly due to exports growth. In 2010, exports showed a considerable recovery, after a substantial decline in 2009. The pattern was completely different at the beginning of the 1980s, when exports grew marginally in 1981 and declined marginally in 1982. Possibly, there is a relation with the moderate economic developments observed in the neighbouring countries, where the economic downturn had less impact and did not last so long. The Netherlands was sometimes referred to as the “sick man of Europe” in the early 1980s.

Decline private sector investments much more dramatic than in the early 1980s

The decline of private sector investments was much more dramatic in 2009 and 2010 than in 1981 and 1982. Government investments showed a different pattern. Fixed capital formation by the government was still growing considerably in 2009, whereas it was already in decline in 1981. Last year, government investments were down on 2009, but the downturn was much more modest than in 1982.

At the end of the 1980s as well as in 2009 and 2010, investments in residential and non-residential building dropped noticeably. In the 1980s, it took until 1984 before these investments picked up again. In 2009, the decrease of investments in machinery and transport equipment was twice as big as in 1981. In 2010, investments in machinery and transport equipment recovered. The pattern was different in 1982. In that year, investments in transport equipment were considerably up on one year previously, whereas investments in machinery dropped slightly.

Decline in household consumption slightly less substantial

Household consumption was 2.5 percent down on one year previously in 2009. The decline was followed by a moderate growth in 2010. In 1982, household consumption was still contracting after a decline of 2.4 percent in 1981. The conclusion is that, if both two-year periods are compared, household consumption declined more in the early 1980s than in 2009/2010. In the 1980s, unemployment increased much more than during the recent economic downturn. Presumably, this had a very negative effect on household consumption, since income from salary is the most important source of income for households.

Government consumption growth about the same as in the early 1980s

Government consumption growth in 2009 and 2010 was approximately the same as in the early 1980s, but since government spending was still increasing in 2009, total government spending contributed more to economic growth in 2009/2010 than in 1981/1982.

Wouter Jonkers