For a long time there were mainly negative reports about Europe. While the United States grew rapidly, the EU economy continued to struggle. “We have had a huge shock,” says Bert Colijn, an economist at ING who specializes in the eurozone economy. That shock was especially great because of the war in Ukraine: Europe was addicted to cheap Russian gas and the Russians largely turned off that tap when Europe sided with Ukraine in the war.
Industry that uses a lot of energy in particular was hit hard: energy prices rose sharply. Much harder than in, for example, the US and China. “This has led to a recession in the energy-intensive industry in Europe,” says Colijn.
Now energy prices have fallen again, but are still higher than in the US, for example. “Europe still has no alternative to cheap Russian gas,” says the ING economist. “The price of liquefied natural gas is currently low, but that could easily change.”
Resilience
Yet Colijn is not gloomy. “The high energy prices were a big shock: we then had five quarters of standstill. However, this has not led to mass layoffs. The Eurozone economy has shown resilience. The story that Europe would become an open-air museum has not come true. We have overcome the stagnation resiliently.”
And expectations remain positive. The economy is growing rapidly, especially in the southern EU countries. Germany, long the sick man of Europe, has now also emerged from the recession, but is still lagging behind other countries when it comes to economic growth.
This is partly because Germany has a large energy-intensive chemical sector. Chemical companies now prefer to invest in the US, because they have lower energy prices there and the US government gives all kinds of benefits to companies that invest in the US.
Rising purchasing power
However, that is no reason to be pessimistic, says Colijn. “I expect that growth in the euro zone – which is all countries whose currency is the euro – will continue to pick up, especially towards the end of the year.” The rising purchasing power of consumers is one of the reasons for Colijn’s optimism. If consumers start spending more, this will provide a significant boost to growth. Then companies see demand growing again and they invest more, which in turn leads to further growth.
The improving economy in Europe is also good news for the Netherlands. As a small country with many exporting companies, we are very dependent on the economic fortunes of other countries. Especially in Germany, still the largest export destination for Dutch companies.
Things are also getting better in the Netherlands. In April, the industry grew again for the first time in twenty months, as was evident last week. “Production, employment and the number of new orders are increasing,” says Albert Jan Swart, industry sector economist at ABN Amro.
More workers, more spending
Until fairly recently, the industry was still in the corner where the blows were falling. Companies had difficulty obtaining raw materials and products during the corona pandemic, so they built up large inventories when trade resumed. Then the economy collapsed again, leaving companies with large inventories that could only be used up slowly.
As a result, companies ordered less from other companies, which led to a stagnant economy. “Now those stocks have been eliminated,” says Swart. Interest rates are also falling somewhat, which is favorable for investments. “And the Netherlands has a relatively large high-tech industry, which is also increasing.” Things are not going well everywhere, by the way. Construction continues to struggle, especially residential construction.
However, the service sector is doing well. And it accounts for a larger share of economic activity than industry. The catering industry continues to do surprisingly well: people still like to eat out or go to the café. Temporary employment agencies also have plenty of work again thanks to the tight labor market. And the more people work, the more they can spend. And that will further boost economic growth.
