The government must also show itself in this crisis

The fog is thick and yet you have to navigate. On Wednesday, the Central Planning Bureau published its latest forecasts for the Dutch economy in this and next year. It is more than understandable that the estimates are used with a considerable margin. The international political and economic situation is currently too opaque.

Russia’s invasion of Ukraine leads to a new crisis while the previous one, the pandemic, is barely over. The Netherlands, Europe and the rest of the world are once again dealing with events that are very far-reaching and literally unpredictable.

The (imminent) loss of Russia as a major supplier of oil, gas and metals is paramount. Energy prices, one of the most important variables in the economy, are going through the roof and are behaving wildly. Gas now costs on the stock exchanges seven times as much as last year. Oil more than double. In London, nickel trading was halted on Monday as the price quadrupled in a matter of hours.

Since Russia and Ukraine are both among the largest exporters of grain, shortages in this area with corresponding price increases are to be expected. In the meantime, households almost worldwide already have to deal with significant inflation. In the Netherlands, the price increase in February was 6.2 percent – ​​although ‘core inflation’ excluding food and energy, at 2.8 percent, remains reasonably contained.

Sanctions imposed against Russia also have incalculable consequences. Never before have the banks and the central bank of a country of this size been so imprisoned – with as yet unknown consequences for the global financial system. Western companies are withdrawing en masse from Russia – the speed of that collective reaction may have been insufficiently taken into account by the creators of the official sanctions.

In short, it is very difficult to estimate the economy in the short and even medium term. While the pandemic mainly affected the service sector (catering, shops, personal care, culture), the Ukraine crisis is increasingly becoming one of the manufacturing industry where the cost of energy and reaching overseas markets play a major role. It is impossible to say whether there will be a recession or not. What is clear is that the Dutch economy as a whole is in reasonable shape, unemployment is low and household savings are high.

So there is a buffer, but that does not apply to all residents. The lowest incomes have a hard time. In response to the CPB figures, the main political debate this week focused on the expected decline in purchasing power: 2.7 percent, or 3.4 percent in a worse scenario and 0.6 percent in the unlikely event that the crisis is not too bad. That emphasis on purchasing power seems cramped next to a war in which there is currently so much human suffering. But it is understandable. Not only because the high energy price takes a big bite out of household budgets. Also because compensation for this is one of the few concrete measures that the government can now take.

In times of crisis, the government is there to mitigate the negative consequences as much as possible, with an emphasis on employment and vulnerable groups. Just like during the pandemic, the government must show that it is there and can act. Massive loss of confidence is the last thing the economy can handle right now.