Netherlands: Economy contracts marginally in the fourth quarter of 2020
A second reading of national accounts data confirmed the preliminary estimate of a 0.1% quarter-on-quarter contraction in the final quarter of last year, swinging from the third quarter’s record 7.7% jump. However, the surge in Q3 was partly due to the historic drop in GDP in Q2 amid the first lockdown.
The print reflected a drop in household spending (Q4: -1.4% qoq; Q3: +9.0% qoq) due to tighter restrictive measures to combat the spread of Covid-19, which weighed on activity. Similarly, public consumption dropped 0.4% in the fourth quarter after expanding 6.9% in the third quarter. Contracting consumption was partially offset by growing fixed investment, although the pace of expansion slowed notably (Q4: +0.8% qoq; Q3: +9.2% qoq), likely due to firms postponing expansion and investment plans amid the uncertainty created by the ongoing health crisis. In addition, the external sector helped to cushion the headline drop as exports of goods and services grew 1.0% over the prior quarter (Q3: + 8.0% qoq) and outpaced import growth of 0.9% (Q3: +6.7% qoq).
On an annual basis, the economy shrank 2.8% in Q4, which was slightly softer than the previous estimate of a 2.9% drop. However, the contraction was sharper than the third quarter’s 2.4% fall. Looking at the year as a whole, GDP contracted 3.7%—fractionally above the initial estimate of a 3.8% decline, but still contrasting 1.7% growth in 2019.
Turning to this year, the economy is forecast to recover from the pandemic-induced downturn as restrictive measures are gradually relaxed due to the global rollout of vaccinations, which will bolster domestic and foreign demand. However, downside risks persist due to lingering uncertainty over the pandemic and trade relations with the UK, and the slow vaccine rollout. Moreover, growth will be partly flattered by a supportive base effect.
Dr. Daniel Harenberg, lead economist at Oxford Economics, added:
“Due to the slow start of the vaccination process and continued pandemic containment measures, the near-term outlook for the Dutch economy remains challenging. […] The government’s job-retention scheme, easing of bankruptcy requirements and support measures for the self-employed substantially softened the labour market blow from Covid-19. But these measures will run out by mid-2021, so the unemployment rate will then start rising and continue to increase until early-2022. But the rate will not rise much above the long-run average, so it should not impede growth too much.”