Question

How has the global financial crisis (GFC) affected the budgets of the two countries ( Netherlands and Malaysia )? In your answer consider how the use of fiscal policy during the GFC impacted the budget deficit/surplus. The period of the GFC is 2007 to 2009.

Answer 1

The malaysian economy in 2007 was a sound economy with confidence and stability in financial sector which remained intact throughout the period of global financial crisis untill 2008 .The financial sector in the country had ample amount of liquidity due to which it supported the economy throughout the Global financial crisis till tge initial phase of the crisis .

As malaysian economy is an open economy so it was not insulated from the global slowdown of the economy the second half of 2008 saw Malaysia’s GDP moderate to 0.1% in the final quarter of 2008 and by 2009 the domestic economy of Malaysia saw a huge impact of decline by 6.2%.As the economy us mainly dependent upon international trade so manufactured products accounted for more than 80% of the countrys total gross exports the bulk of which is majorly dependent upon the imports of intermidiate goods which accounts foe very little value addition .Moreover the export market was not diversified as the major part of exports was to G3 countries.

In malaysia the investment as the percentage of GDP halved after global economic crisis and this loss never recovered to its pre crisis level .The gross domestic investment in the GDP dropped from 43.6 in 1995 to 19.6 in 2009. The fall in nverstments was seen in private sector which was from 31.2% to 10.9% in the same period also in 2008 budget results showed that due to government step in increasing the FDIs in 2008 and the induced investment of the public sector the moderate increase in GNP was seen , the current account balance of the economy was 18.1% .

The dutch economy had a very low unemployment rate ,stable current acount surplus , low government debt and surplus givernment budget which gave every possible sign that the economy can survive the global financial crisis with a very little or no slowdown in the domestic economy of the country However in 2008 the negative effects of the financial crisis became more apparent and economic growth came to a grinding halt in the second quarter.and in 2009 the economy was expected to drop down to -4.5%. This was not only affected by adverse world trade but also by negative developments of domestic demand associated with an adverse wealth shock.

At the start of the crisis, the unemployment rate in the Netherlands was the lowest in Europe at around 3%., the labour market was incredebly tight which accounted for high vacancy rate which was even higher than unemployment rate ,it did not result in increase in wage buut to more flexibility in tgge labour market it resulted in high participation rate and enables a quick adaptation to changing economic situations ..

Over the years the government position has been much firm as compared to other european countries.,this happened due to increasing the gas revenues which led ,the govt defecit was increased by 3% of GDP 2009 and by 6% in 2010 which resulted in budgetary ease of about 7% of GDP of the economy in not more than 2 years .In fiscsl space the government current account surplus of almost 10% of GDP was recorded, among the highest in Europe in 2007 . Netherlands showed surplus on capital balance limiting its dependency on foreign capital.