The Netherlands: Cherishing the restrained shock
We think the Dutch economy will shrink by -6% to -8% in 2020 despite a sizeable public support package. As lockdowns ease, economic activity is resuming again, but a full recovery might not happen until 2022
Why the Netherlands stands out favourably
Dutch GDP fell by -1.7% quarter on quarter in 1Q20.
Although still large in absolute terms, this decline is mild compared to the eurozone average of -3.6%. This is because the lockdown in the Netherlands was milder and the wage subsidy scheme generous. As for almost any economy, figures for 2Q20 will be significantly worse. April figures on industrial production (from -1% MoM to -8%, adjusted for working days and seasons) and retail sales (from -2% MoM to -6%) were much worse than the March figures since the lockdown only started two weeks into March.
The very large drop in employment of 160 thousand people (-1.7% of the labour force) in April illustrates that the corona crisis had an unusually quick and large effect, but compared to peer economies the Netherlands stands out favourably.
Outlook for May better due to gradual lifting of lockdown
Industrial production and retail data of May will most likely look only a bit better than April. Sentiment figures were at similar levels in May as they were in April, but the underlying data shows that especially expectations improved, in line with the gradual reopening.
Since 15 May, contact-intensive occupations such as hairdressers and masseurs, are allowed to do business again. At 1 June, also bar, restaurants, cinemas and theatres were allowed to open again, although with capacity restrictions. School re-opened in the first weeks of June. Major restrictions for tourist from most EU countries were lifted 16 June. Fitness clubs and saunas will open on 1 July. Events with large crowds, including soccer matches and night clubs, will have to wait until at least 1 September.
Direct public support large, but tax deferral tops
After the initial support for three months, the Dutch government decided at the end of May to extend the majority of economic support measures by four months until 1 October.
The extension, which initially was intended for three months, was expanded after deliberations with unions and employer associations. The decision meant extension of the main measures such as the wage subsidies, benefits for self-employed and deferral of taxes. Another major intervention, re-insurance of supplier credit, was already valid for the entire year 2020.
Support for 2020 is large in historical perspective, but there are countries which do more, most notably Germany. While the bulk (5.1% of GDP of 2019) of discretionary measures concerns tax deferrals, also the total direct net expenditures are sizeable amounting to about 4.4% GDP in 2020.
Largest discretionary public support in tax deferrals and lending
Some tweaks to earlier package
Some of the conditions for support have changed.
For example, firms using the wage subsidy - the main instruments of the support package shielding almost a quarter of workers - will temporarily (in 2020) be forbidden to pay out any dividends or executive bonuses or execute share buy-backs. Some new instruments were added, such as compensation for firms for fixed cost and support for public transportation.
Corona policy measures by the Dutch government substantial in size
Better set up for recovery, but it may still take a while
The packages of interventions help maintaining employment and income and keep firms afloat. Nevertheless, a substantial fall in consumption and investment will not be avoided for 2020. The Dutch economy is forecast to shrink by -6% to -8% in 2020 in our base case scenario, keeping the Dutch on the favourable side of the eurozone average. Based on an index measuring vulnerability to a prolonged corona slump, the Dutch economy also seems better set up for a recovery than peripherical eurozone countries.
Nevertheless recovery to the pre-corona level of GDP may not be complete by the end of 2022.
The Dutch economy in a nutshell (%YoY)
22 June 2020Eurozone Quarterly: The gradual, but not great, re-opening This bundle contains 15 articles
This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more