A river under the bridge in the Netherlands

Netherlands GDP Q1 2021

Netherlands: Economy contracts at steeper pace in first quarter

A preliminary reading of national accounts data showed that the economy contracted 0.5% quarter-on-quarter in the first quarter of 2021, entering its second recession since the Covid-19 crisis began last year. The print came in below the fourth quarter’s drop of 0.1%, but beat market expectations of a slightly larger decrease in output. In annual terms, the economy contracted 2.8%, matching the result logged in the fourth quarter of last year.

The quarterly drop came on the back of a steeper fall in consumption, with restrictive measures enforced since the middle of December weighing on household spending as retail stores were closed. Private consumption dropped 3.5% quarter-on-quarter in Q1, down from the 1.4% decrease in Q4. Meanwhile, public consumption fell 1.5%, down from the fourth quarter’s 0.4% contraction. More positively, fixed investment expanded at a stronger pace in the period (Q1 2021: +3.7% qoq; Q4 2020: +1.7% qoq).

On the external front, exports of goods and services increased 1.6% over the prior quarter in Q1 (Q4: +1.0% qoq) amid healthier foreign demand, while imports of goods and services rose 1.3% quarter-on-quarter (Q4: +0.9% qoq). The external sector thus contributed positively to the overall reading in the first quarter, despite the end of the Brexit transition period at the turn of the year.

Economic activity should pick up pace from the second quarter onwards, with the gradual easing of restrictive measures—facilitated by the vaccine rollout—buoying household spending. The vaccination rate has picked up pace since March, with just under a third of the population having received at least one jab by mid-May. Moreover, the removal of lockdown measures abroad will bolster foreign demand and further support economic growth. That said, risks remain skewed to the downside due to ongoing uncertainty regarding the evolution of the pandemic. Furthermore, a favorable base effect will flatter growth this year.

Marcel Klok, senior economist at ING, added:

“On the back of the loosening of the lockdown which has already happened, we project a substantial quarter-on-quarter jump in GDP in the second quarter. Such a jump in consumer spending is already visible in ING transaction data. Even though today’s first quarter numbers will lead to some tweaks in our projections, it was very much in line with our forecasts (which was -0.4%). This means that we expect GDP on the order of 3% for the year 2021.

GDP could already be back to its pre-crisis peak by the end of this year, as economic life normalises further in the second half of the year. As such, the GDP recovery out of the Covid crisis will be a fast one, setting aside possible surprises that can never be excluded in this virus-dependent economic rebound. That said, temporary increases in unemployment and bankruptcies are still included in our base case, as temporary public support measures will fade eventually.”

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