Netherlands: Economy grows at softer pace in Q3, but returns to pre-pandemic levels
November 16, 2021
Economic growth slowed to 1.9% in seasonally-adjusted quarter-on-quarter terms in the third quarter, from 3.8% in the second. The headline reading was broadly in line with market analysts’ expectations. While the print marked a loss of steam, the economy still returned to pre-pandemic levels in the quarter. On an annual basis, GDP expanded 5.0% in the third quarter, softening from the 10.4% increase logged in Q2.
The headline reading mainly benefited from robust private consumption growth as restrictive measures to curb the spread of Covid-19 were eased. Household spending grew 3.8% over the prior quarter in Q3 (Q2: +6.4% s.a. qoq), mainly due to solid trade and services activity. Government consumption also grew again, albeit at a reduced rate of 0.7% in seasonally-adjusted quarter-on-quarter terms, following the 3.9% expansion logged in the second quarter. Less positively, fixed investment continued to fall, contracting 2.7% in the third quarter (Q2: -1.6% s.a. qoq).
On the external front, growth in exports of goods and services eased to 1.3% in the third quarter from 4.2% in Q2. This was mainly due to a marked slowdown in goods exports, likely due to supply bottlenecks. Imports of goods and services slowed from a 2.7% increase in the second quarter to a 1.6% expansion in Q3, as services imports contracted at a marked pace.
Turning to the final quarter of the year, economic activity will likely be dented by the reinstatement of restrictive measures from 13 November. The lockdown will see reduced opening times for all non-essential stores and services, and the return of social distancing policies. Moreover, supply bottlenecks will continue to limit production. That said, these developments should be a short-term shock and the outlook for next year remains largely unchanged, although spiking new Covid-19 cases call for caution. A tight labor market and the eventual removal of restrictions should buoy household consumption, but the rollback of fiscal support measures and an overheating housing market cloud the outlook.
Marcel Klok, senior economist at ING, added:
“Despite the downward risks, we hold an optimistic view of the Dutch economy, given the strength of general demand. One of the notable strengths is the consumer, as a result of a buoyant labour market. Gross and net participation rates have reached historical record highs.”
Analysts at the EIU are somewhat more cautious, however, commenting:
“We expect some form of coronavirus restrictions to continue until next spring, but the government will do its utmost to avoid another lockdown. Our baseline forecast is that economic activity is unlikely to be severely affected, but that the return of limited restrictions will constrain growth in early 2022.”
Author: Jan Lammersen, Economist