Netherlands: Economy expands at faster rate than previously estimated in Q2
September 23, 2021
Economic growth was stronger than initially estimated in the second quarter, with GDP expanding 3.8% quarter-on-quarter (previously reported: +3.1% qoq) following the 0.8% contraction logged in the first quarter. On an annual basis, the economy expanded 10.4% in Q2 (previously reported: +9.7% year-on-year), swinging from Q1’s 2.4% drop and nearly returning to pre-pandemic levels.
The quarterly bounce-back was chiefly due to household spending and foreign trade. On the domestic front, private consumption swung from a 3.5% contraction in the first quarter to a 6.4% expansion in the second quarter, buoyed by softer lockdown rules which saw consumers part ways with some of their excess savings. Government consumption also returned to growth, expanding 3.9% over the prior quarter after dropping 2.0% in Q1. Less positively, fixed investment contracted 1.6% in the second quarter, contrasting the 3.0% expansion logged in the first.
On the external front, growth in exports of goods and services accelerated from 1.1% in the first quarter to 4.2% in the second, as the easing of global restrictions buoyed foreign demand and external trade. Merchandise exports particularly shifted into a higher gear, while services exports also grew at a stronger pace. Imports of goods and services, meanwhile, grew 2.7% in the quarter, up from the first quarter’s 0.8% expansion. This was solely due to growth in goods imports, as imports of services contracted.
The economy is expected to continue growing at a solid pace in the second half of the year, with restrictions further eased on 25 September, which bodes particularly well for the leisure sector. Next year, the economy is forecast to grow at a robust, albeit softer, pace compared to this year as the low base effect fades. Downside risks remain amid lingering uncertainty over the course of the pandemic: Although solid vaccination progress reduces the likelihood of further outbreaks and the need for tighter restrictions, new strains of Covid-19 continue to cloud the outlook. Meanwhile, productivity could take a hit from a very tight labor market and supply-side constraints.
Commenting on the outlook for this year, analysts at the EIU added:
“The Economist Intelligence Unit is forecasting full-year growth of 3.9% and expects a return to full-year pre-crisis real GDP levels by late 2021. This fairly rapid recovery reflects the government's significant policy support and the structure of the Dutch economy (which is highly digitalised, relatively less reliant on high-contact services such as hospitality and tourism, and has diverse exports).”
Meanwhile, the caretaker government tabled its draft 2022 budget on 20 September. The plan includes measures on taxation, announcing a tax-free allowance effective from 1 January 2022 for employees who wish to continue working from home. Moreover, the government announced limited measures aimed at boosting purchasing power by 0.1% next year, and earmarked EUR 2.1 billion for testing and vaccination infrastructure. Given the cost of managing the pandemic, healthcare insurance is also set to rise next year. Meanwhile, the cabinet allocated more funds to subsidize sustainable energy projects, and a significant amount to address the housing problem. Finding an affordable home has become very difficult, especially for first-time buyers and in major cities, due to a combination of government regulations and population growth. This has created a sizable shortage of houses and has seen prices rise steeply: House prices increased 13.0% on average between January and August this year.
Author: Jan Lammersen, Economist