Netherlands: Economy returns to growth in the second quarter
August 17, 2021
The Dutch economy rebounded in the second quarter, with GDP expanding 3.1% quarter-on-quarter following the 0.8% contraction recorded in Q1. The headline reading vastly overshot market analysts’ expectations. On an annual basis, meanwhile, GDP rose at a record pace of 9.7% in the second quarter, swinging from the first quarter’s 2.4% contraction and thus nearly returning to pre-pandemic levels.
On the domestic front, the quarterly expansion was driven by firming household spending. Private consumption surged a record 5.7% quarter-on-quarter in Q2 (Q1: -3.5% qoq) as consumers parted ways with their excess savings amid the easing of restrictions from mid-May onwards, with the end of the hard lockdown on 5 June. Meanwhile, public consumption swung from a 2.0% contraction in the first quarter to a 2.6% expansion in the second. Less positively, fixed investment tumbled 1.8% over the prior quarter in Q2, contrasting the 3.0% expansion logged in Q1.
On the external front, healthier global trade flows in the quarter amid a worldwide easing of restrictive measures supported exports of goods and services, which expanded 4.0% quarter-on-quarter, up from the 1.1% increase recorded in Q1. Growth in exports of goods was particularly upbeat, but services export growth also accelerated. Meanwhile, imports of goods and services grew 2.6% in the second quarter (Q1: +0.8% qoq), further reflecting strengthening domestic demand.
Looking ahead, economic activity will have taken a hit from the reinstatement of lockdown measures on 10 July. This came amid a surge in new Covid-19 cases and the emergence of more infectious strains of the virus. However, given that cases have receded notably since peaking in mid-July, the economy should be able to reopen again, providing a boost to activity at the tail end of the third quarter and into Q4. Lingering uncertainty over the course of the pandemic will continue to cloud the outlook, and tightness in the labor market could weigh on firms’ productive capacity and constrain activity. Nonetheless, the economy should post a solid growth figure for the year as a whole, and good progress on the vaccination front—nearly 70% of the population had received at least one jab as of 15 August—should diminish the risk of further Covid-19 outbreaks and the need for tighter restrictions.
Commenting on the outlook, analysts at the EIU added:
“As normal conditions resume, the government's substantial economic response and the services-oriented nature of the Dutch economy will leave the Netherlands better able to rebound quickly than the Euro area's peripheral economies. We expect a return to full-year pre-crisis real GDP levels during 2022.”
Author: Jan Lammersen, Economist