Dutch GDP sees a sharp drop in the first quarter

Previously, we concluded that a small contraction could not be fully excluded, our most recent base case forecast based on the latest monthly data in the May Monthly economic update of 0.4% quarter-on-quarter was still positive. The outturn was much worse, with GDP falling -0.7% compared to the previous quarter. Still, GDP was 1.9% larger compared to the first quarter of 2022.

Dutch export performances were weak, with a contraction of -1.8% and a negative contribution to GDP growth of -0.5%. The latter mainly resulted from services. Service exports expanded by 0.9%, while service imports rose by a substantial 4.5% and thereby provided a large negative contribution to GDP growth. Goods exports contracted by -2.7%, in line with global developments. World goods trade was also weaker in January and February 2023 than in the fourth quarter of 2022. As goods imports fell to a similar level as good exports, the net contribution of goods trade to GDP growth was close to 0%.

As a considerable share of firms in retail and manufacturing still considered stock as being “too large” according to recent surveys by the European Commission, inventories were yet again reduced substantially. The reduction of -1.1% GDP was almost twice as in the fourth quarter of 2022, larger than expected. It contributed a considerable -0.5%-point to the negative GDP development. As expected, investment excluding stock building did decently well, with gross capital formation increasing by 1.1% compared to the fourth quarter. The expansion of investment was especially strong in transport equipment (6.5%), housing (3.7%) and infrastructure (3.6%). Growth was also present among intangible assets (0.9%) such as software & databases and R&D. There was less investment in ICT equipment (-6.2%), non-residential buildings (-1.0%) and machinery & other equipment (-0.6%).

Consumption of households stagnated, growing only by 0.05%, supported by ongoing employment growth and accelerated income growth but held back by high inflation. This was only a little bit weaker than forecast. Dutch consumers bought more abroad, while consumers living abroad also purchased more in the Netherlands. Government consumption expanded by 0.5%. Growth was limited to individual final government consumption, which includes health care and education consumption.

Among Dutch industries, recreation & culture (-4.5%), ICT (-1.9%), and especially mining & quarrying (i.e. oil & gas, -28.5%) contracted sharply in terms of value added. Manufacturing also shrank by -1.1% QoQ, adjusting the increased energy costs. The contraction of industrial production was most pronounced in footwear & leather goods, construction materials, beverages and furniture. Manufacturers of machinery, chemicals (excluding pharmaceuticals), textiles, basic metals, paper and printing produced less.

There was also a decline in value added of trade, transport & hospitality (-1.1%), water utilities (-0.8%), business services (-0.7%), the financial sector (-0.5%), and semi-public services (-0.2%). The trade, transport & hospitality sector includes retail, of which sales volumes increased by 0.5% QoQ, but contracted more recently by -1% MoM in March. Construction (2.4% QoQ growth), the energy supply sector (1.6%), agriculture and fishery (1.0%) and real estate (1.0%) expanded.