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Smooth versus bumpy: differences in growth dynamics in Belgium and the Netherlands

Gerrit Bethuyne and Bouke Buitenkamp (Directorate-General for Economic and Financial Affairs)

Smooth versus bumpy: differences in growth dynamics in Belgium and the Netherlandspdf(112 kB) Choose translations of the previous link 

Until the mid-1990s Belgium and the Netherlands remained largely aligned in terms of output growth. However, since then they have shown a more divergent growth pattern as the Netherlands experienced a much more pronounced cycle than Belgium. There are three main explanations. 

  • The Netherlands saw significant equity withdrawals from rising housing prices that only lessened as the real-estate
    market cooled down at the start of the new millennium, while the dynamic in the Belgian housing market has been much more modest and home equity withdrawal insignificant.

  • The inflation pressures and labour market tensions that built up during the late 1990s in the Netherlands resulted in high nominal labour cost growth, a substantial loss in international competitiveness and the need for severe wage
    moderations in the ensuing years, which in turn reinforced the downward part of the cycle. In Belgium, the wage-setting institutions were more geared towards aligning wage developments to those of its neighbours, which prevented large swings in relative competitiveness.

  • Economic policy was more accommodating in the Netherlands than in Belgium since inflationary pressures mean that real interest
    rates in the Netherlands were lower, implying a de facto more accommodating monetary stance.


Moreover, fiscal consolidation in Belgium in preparation of the adoption of the euro had a moderating effect on the cyclical upswing, whereas in the Netherlands fiscal policy was somewhat pro-cyclical.

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(Country Focus. 09. July 2006. Brussels. 6pp. Tab. Free.)


ISSN: (internet) 1725-8375

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