Watch: webinar 'the impact of COVID-19' part II
On July 15, NLinBusiness and all NL Business Hubs organised the second webinar on the Impact of COVID-19 on Global and European Economy and Geopolitics. Hans de Boer, President of VNO-NCW, opened the floor by providing his view on the COVID-19 crisis and the economic impact. Afterward, Joanna Konings, Senior Economist for International Trade Issues at ING delved into the impact of the COVID-19 outbreak on the Global and European economy, followed by Alex Krijger, Founder of Krijger & Partners who provided insights into the geopolitical consequences of the global pandemic. This was done under the moderation of Edo Offerhaus, Managing Director at NLinBusiness.
“Did you miss out on Part I of this webinar series, find a summary of the webinar here.”
Read below for a brief summary of Part II of the webinar, would you like to see the entire webinar instead? Find the webinar recording below.
Opening remarks by Hans de Boer
The Netherlands has done relatively well in its handling of the economic crisis and is unique in its strategy; by collaborating strongly with social partners, like VNO-NCW and the trade unions. The government has developed two economic support packages that have been well received, which is reflected in the fact that unemployment is at around 4 percent, which is half of neighbouring countries.
In view of the current economic situation, some believe the worst is behind us. Hans de Boer disagrees: "I hear from members who are active abroad that they are afraid their portfolios will dry up and unemployment will rise". The Dutch economy is dependent on international activity as over 30% of its GDP is earned abroad. That is why a third package is being developed for this autumn and winter that is characterised by its enhanced flexibility compared to previous packages and includes an investment programme to invest us out of the crisis. Hans de Boer notes that "although we have been nationally successful, if we cannot do well internationally it still means we will suffer an economic blow in the second half of the year.”
Hans de Boer expresses his worries about the geopolitical situation with Hong Kong and China. In that respect he believes the EU is an important institution which can offer solid support on economic and peace matters. "If there is one market that can exert influence over China to create a more rules-based system, it is the EU because of our market size". Maintaining unity in the European community is important, and the package of support looks efficient, which is why VNO-NCW is asking the Dutch government to be solidary with the EU countries.
Joanna Konings on the economic impact of COVID-19 on the European and global economy
In April we saw the strongest lockdown worldwide, which caused economic activity to fall sharply. Economic activity was less than 70% of what it had been in the first three months of 2020 and in May this too declined to 90% less. Economic activity is gradually increasing now that the lockdown has been slowly lifted, as is illustrated in the figure below.
There are two distinct groups of countries reflected in this figure;
- Group 1 saw the largest decline in economic activity, including countries such as Belgium, Spain, France and Italy. They dropped sharply but as time went by and lockdowns were lifted, they managed to recover their economic activity.
- Group 2 saw a smaller decline in economic activity; this included countries such as the Netherlands and Germany.
The UK is somewhat of an outlier, reflecting the purple line; its lockdown is still in place and therefore economic activity is picking up slower compared to other countries. Therefore, one can draw from this figure that generally domestic lockdowns were central in the decline in economic activity.
Looking ahead, full lockdowns are pretty much over and ING assumes with the knowledge we have today that a full lockdown is unlikely to happen. This is good for economic growth as countries who ease up their lockdown and open up again experience positive growth returns. However, even though we are on the recovery path, the economic damage remains severe. The risk remains for a second wave of the virus as cases in some countries rise again, particularly as countries enter the colder months.
European policy response to pandemic
European countries responded quickly to the pandemic with various policy measures. Europe has not experienced much increase in unemployment due to short-time adjustment of work schemes. European Central Bank (ECB) has also extended its pandemic emergency programme to 13.5 trillion euros, giving them more flexibility on stimulus packages. The ECB has plenty of room for stimulus packages as inflation is predicted to stay below 1% for the next two years, meaning price stability will not be at risk. Joanna adds that the outlook remains challenging for export-oriented economies as they will suffer from both further supply chain disruptions and weak global demand.
The U.S. economy and its global impact
U.S. economic activity is an important determinant of monetary conditions worldwide. What we are dealing with is a very high level of unemployment in the US, which is really vulnerable to different states coming out of lockdown and more people moving on to unemployment benefits. This will affect the FEDs' decisions and might reverse some of the stability that was seen thanks to the FEDs' actions in other countries around the world.
Alex Krijger on geopolitics
Alex Krijger focuses on the geopolitical risks and opportunities presented by COVID-19. Overall, the outbreak is expected to accelerate some of the key geopolitical trends that were already on their way.
The biggest concern is the geopolitical rivalry between the U.S. and China. Alex predicts that a combination of economic fallout and a strong U.S. attitude toward China will dominate U.S. elections in the coming months. Notably, Trump will seek to portray Biden as soft on China, which negatively impacts the U.S. The issue will also impact European business as they are sometimes squeezed between the two powers. To fight against this, the EU should come up with its own China strategy to be able to speak with one voice.
The pandemic also created opportunities on a geopolitical level, which is being called “the great reset”. Even as we face many challenges, there are ways to add value to the world with a greener, fairer and smarter future ahead.
The EU is an economic super-power but politically it is quite divided. Ursula von der Leyen believes that Europe's political cohesion should be strengthened by acting as one body and working together instead of competing. So, it is not only important to focus on a greener future that is central to most agendas, but it is also important to focus on Europe's strategic autonomy. This aspect particularly became clear during the pandemic as we are too dependent on the rest of the world when it comes to things like medical equipment. An opportunity for business is therefore to focus on sustainability and products or services that relate to strategic autonomy.
Focusing on the elections, there are three important ones to watch, including the upcoming U.S. elections and their impact on the relationship with China, the Dutch elections in March 2021 and lastly the German elections in autumn of next year. Alex believes there is a chance that the outcome of these elections will prompt a European integration led by France and Germany. This will come in handy if the tensions between China and the U.S. will increase and provides an opportunity for the EU to step up.
For the even longer term it is also important to focus on emerging markets which show plenty of opportunities, such as India which is the biggest democracy of the world or the Indonesian or Nigerian markets, which are rapidly expanding. It is very interesting to invest in countries that grow very fast. Would you like more information? Read the two pager Alex wrote here.
We are reminded that the crisis continues around the world. Even though the most acute stresses are over, and unemployment is stabilising, one thing that we can say is that monetary policy is still in crisis mode and interest rates are going to remain low. U.S. geopolitical inclinations toward China are also of concern, given the U.S. election and the EU's current struggle to act as one force. However, a crisis can have two sides; one representing danger and the other representing opportunity, and as stated in Part I of this webinar series, Dutch entrepreneurs remain optimistic and will seek opportunities to prepare their businesses for any scenario.