Netherlands: GDP declines at sharper-than-expected pace in Q1
June 24, 2021
A second reading of national accounts data revealed that the economy contracted at a steeper pace than initially estimated in the first quarter. Output fell 0.8% quarter-on-quarter in the period, which was down from the preliminary estimate of a 0.5% drop and below the fourth quarter’s flat reading. In annual terms, the economy shrank 2.2%, up from the fourth quarter’s 3.1% contraction.
The quarterly downturn came on the back of weakened domestic demand, weighed down by lingering restrictive measures to curb the spread of the coronavirus. Household spending dropped 3.0% (Q4 2020: -0.9% qoq) as restrictions saw retail stores closed since the middle of December, limiting consumers’ ability to spend. Moreover, public spending fell 2.0% in the quarter, deteriorating from the fourth quarter’s 0.3% contraction. On a positive note, fixed investment expanded 3.0% in Q1, growing for the third consecutive quarter, albeit at a more moderate pace (Q4 2020: +3.4% qoq).
On the external front, healthier demand dynamics drove an uptick in exports of goods and services, which increased 1.1% quarter-on-quarter (Q4 2020: +0.5% qoq). Meanwhile, growth in imports of goods and services ticked down to 0.8% in Q1 from 0.9% in the fourth quarter of last year.
Activity is expected to pick up pace from the second quarter onwards, with the near complete reopening of the economy taking place on 26 June. This has been facilitated by faster progress on the vaccination front in recent months, with over half of the population having received at least one dose by late June. Furthermore, the gradual removal of restrictions abroad will bolster the external sector. However, risks remain skewed to the downside amid ongoing uncertainty over the course of the pandemic due to new variants of the virus. Moreover, a favorable base effect will flatter the growth reading this year.
Commenting on the outlook, analysts at the EIU added:
“We forecast full-year growth of 2.9%. 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.”
Author: Jan Lammersen, Economist