Dr A H E M Wellink: Introduction to the press conference
on the 1999 Annual Report
Speech by Mr A H E M Wellink, President of De Nederlandsche Bank, at the press conference, held in
Amsterdam on 17 May 2000.
* * *
The world economy is in good shape. In 1999 GDP growth came out at 3%, exceeding expectations.
Yet, this overall pattern masks a number of risks and uncertainties. The motor driving the exceptional
US economic performance - at the same time the motor driving the world economy - is in danger of
becoming overheated. Southeast Asia recorded a rapid recovery from the financial crisis, but the
Japanese performance remains weak. The first half of 2000, however, holds out better prospects.
In Europe, too, economic performance is improving. In 1999 GDP growth reached 2.3%. Though
seemingly low compared to the 3% growth rate of the world economy, it should be noted that
European growth accelerated considerably in the course of 1999. For the current year, a robust growth
rate of 3-3.5% is expected. Thus, prospects for Europe are bright, definitely so if the structural reform
policies are continued and the renewal of the economy, so evident in the United States, progresses
further in Europe as well. There are no grounds to suppose that the ICT train will bypass Europe,
provided, of course, that we see to it that we are well prepared. Despite the movements in the euro's
external value, Europe may pride itself on a successful first year of monetary union. First and
foremost, prospects for price stability in the euro area remain favourable, thanks not least to the
success of the ECB: whoever would have thought two or three years ago that the launch of the euro
would be as smooth as it has proved to be? In addition, Europe's vulnerability to external shocks, such
as the Asia crisis, has undeniably diminished as a consequence of monetary union.
Good, better, best: in the Netherlands, we may meanwhile be doing too well. The Dutch economy is
experiencing its most prolonged cyclical upturn in fifty years' time, due in part to the consumer
spending impulse emanating from higher asset prices. For 1999 this impulse may be roughly estimated
at NLG 10 billion (1.25% of GDP). In a sense, the situation in our country is comparable with that in
the United States. We have now reached a point where caution is called for. In order to prevent the
economy from overheating, it is first of all required that, apart from those already decided on, no
further fiscal impulses should be provided; phrased differently, higher-than-expected revenues are to
be reflected in lower public debt levels. Second, moderate wage movements are to be ensured. Even
then, the new tax system for 2001 will boost average purchasing power by 4% or even more,
representing a powerful stimulus for consumption.
Many commentators view the new millennium as the start of a "new economy". ICT developments
will undoubtedly have a major impact on world economic performance; still, there is no indication
whatever suggesting that economic laws have become fundamentally different. For this reason, and in
order to be able to benefit to the full from the renewing economy, we must continue the structural
reform policies (further improving the operation of the labour market, especially on the supply side,
and of a number of product markets). More in general, policies must remain geared towards the
achievement of well-balanced global macro-economic conditions (low inflation, more equilibrated
balance-of-payments positions). We may well count our blessings, but should not close our eyes to
reality.