Netherlands: Economy contracts at strongest pace on record in Q2
September 23, 2020
A second reading of national accounts data confirmed the dismal performance of the Dutch economy in the second quarter, with GDP falling a record 8.5% quarter-on-quarter on a seasonally-adjusted basis (Q1: -1.5% qoq s.a.) and plunging the economy into its first recession since the second half of 2012. In annual terms, the Dutch economy shrank 9.4%, which is also the steepest fall on record and significantly sharper than the first quarter’s 0.2% decrease.
The Covid-19 pandemic and related containment measures hit domestic demand hard, with household spending particularly weighing on the economy. Private consumption fell a staggering 11.3% (Q1: -2.6% qoq s.a.), hitting a new record low as restrictive measures limited consumers’ ability to spend. Meanwhile, fixed investment also plummeted, contracting 11.3% in Q2 (Q1: +0.6% qoq s.a.) amid increased economic uncertainty. Lastly, government consumption fell 3.1% over the prior quarter (Q1: -1.5% qoq s.a.).
On the external front, exports of goods and services declined 10.3% in the second quarter, down from the first quarter’s 1.9% drop, as global restrictions and weakened trade flows suppressed foreign demand. Imports, meanwhile, dropped 9.5% in the second quarter, down from the first quarter’s 2.0% fall.
This year, the economy is forecast to shrink at the steepest rate since at least World War II; however, fiscal stimulus and the lifting of restrictions should soften the blow and aid the economic recovery somewhat in the second half. Next year, the economy is projected to rebound notably, but this is in part due to a supportive base effect. The balance of risks remains titled to the downside amid lingering Brexit-related uncertainty, while developments in the German economy will also have a key bearing on the Dutch economy.