Netherlands: Economy shrinks at quickest rate in over a decade in Q1 2020
May 7, 2020
The economy contracted in the first quarter as the Covid-19 pandemic extinguished domestic and foreign demand in March, and worse is still to come in the second quarter. The economy shrank 1.7% quarter-on-quarter on a seasonally-adjusted basis in the first quarter, swinging from the prior quarter’s 0.4% expansion. The print marked the worst result since the first quarter of 2009. On an annual basis, the Dutch economy contracted 0.5% (Q4: +1.6% year-on-year), marking the worst result since the second quarter of 2013 in the wake of the Eurozone sovereign debt crisis.
Domestic demand was hard hit by the pandemic and restrictive measures, with private consumption falling 2.7% quarter-on-quarter (Q4: +0.7% qoqsa). This marked a record low and came chiefly on the back of the steepest fall in private consumption on record in March, as consumers spent significantly less on services and durable goods. Global restrictive measures and uncertainty over the duration of those measures also weighed heavily on businesses, with fixed investment dropping 1.1% quarter-on-quarter (Q4: +1.2% qoqsa). Lastly, government consumption also fell (Q1: -1.4% qoqsa; Q4: +0.4% qoqsa).
On the external front, exports of goods and services fell 3.0% quarter-on-quarter (Q4: +0.4% qoqsa) as many trading partners’ economies were suppressed by lockdown measures. Imports, meanwhile, fell 3.5% over the prior quarter (Q4: +0.3% qoqsa).
This year, the economy is expected to shrink at the sharpest rate since at least World War II. While fiscal stimulus should soften the blow somewhat, Covid-19 will extinguish domestic and foreign demand, with a recession all but inevitable. Moreover, the balance of risks is further tilted to the downside by Brexit uncertainty, with the EU and the UK continuing to squabble over the future relation and trade agreement. Developments in the German economy will also have a key bearing on the Dutch economy.
Author: Jan Lammersen, Economist