Netherlands: Economy grows at softer pace in Q4 amid the reinstatement of restrictions
The Dutch economy expanded 0.9% quarter-on-quarter on a seasonally-adjusted basis at the close of 2021. The print was markedly down from the third quarter’s 2.1% increase, on the back of the reinstatement of lockdown measures due to the spread of the Omicron variant in December. On an annual basis, the economy grew 6.2% on a working-day adjusted basis in the fourth quarter, up from the third quarter’s 5.2% increase. As such, the economy expanded 4.8% in the year as a whole over the prior period, swinging from 2020’s pandemic-induced 3.8% contraction.
The fourth quarter’s slowdown came on the back of a contraction in household spending as restrictions were imposed in December. Private consumption decreased 0.1% in Q4 over the prior quarter, contrasting the 4.5% increase logged in Q3. Moreover, public consumption growth also cooled, from a 1.5% expansion in the third quarter to a 0.7% increase in the fourth. More positively, capital outlays rose 2.6% over the prior quarter in Q4, swinging from the 2.3% contraction recorded in the prior period.
On the external front, exports of goods and services dropped 0.1% quarter-on-quarter in the fourth quarter (Q3: +2.2% qoq). This came principally on the back of a drop in services exports, as the restrictions hit the tourism industry. Goods exports growth accelerated, however. The lockdown’s drag on domestic demand is further highlighted by the contraction in goods and services imports (Q4: -0.8% qoq; Q3: +3.1% qoq). Goods imports growth slowed, while travel restrictions weighed heavily on the import of services. Overall, the external sector positively contributed to the headline reading.
Turning the focus to the current year, activity is likely to have continued feeling the burden of restrictions at the outset of the year. However, activity should pick up from mid-February onwards as restrictions lessen: Non-essential stores and services have been allowed to resume service, with restaurants and bars allowed to keep the doors open longer. Furthermore, a tight labor market and the eventual removal of restrictions should buoy household consumption. However, supply bottlenecks continue to drag on production. Additionally, the rollback of fiscal support measures and an overheating housing market further cloud the outlook.
Marcel Klok, senior economist at ING, added:
“The current Covid-19 wave and its accompanying lockdown have had a less negative effect on GDP than previous ones. The surprisingly strong GDP figure for Q 2021 solidifies our view that demand is strong and may even invoke upward revisions of our GDP forecast for 2022. Obviously, risks concerning possible new Covid-19 variants are still present, but for now, there are plenty of reasons to stay optimistic. Even though the Netherlands ended its lockdown on 26 January, it is expected that the Dutch government will reduce Covid-19 containment measures even more on 28 February. This may boost household consumption further, up to the point that it may surpass its pre-pandemic peak soon.”
Analysts at the EIU commented:
“Real GDP growth will remain fairly firm in 2022 (at 2.8%), but the quarterly pattern of activity is likely to be volatile […]. Consumer and business confidence [have] not fallen too sharply, and unemployment has dropped, indicating robust demand for labour (with shortages in some sectors) that is likely to feed back into consumption in the medium term. Higher inflation in the near term will erode disposable incomes, preventing even stronger growth in private consumption in 2022. […] The main risk to our medium-term forecast [are] highly leveraged consumer balance sheets, with household debt equivalent to 230% of disposable income in 2020 (the third-highest ratio in Europe). This raises the risk of a protracted deleveraging cycle that could hold back consumption in 2023–2026.”