Netherlands Disposable Income (ann. var. %)

Disposable Income in Netherlands

Economy records sharpest contraction since Q2 2020 in the first quarter

The economy contracted 0.7% on a seasonally adjusted quarter-on-quarter basis in Q1, contrasting with the fourth quarter’s 0.4% increase. Q1’s reading marked the worst result since Q2 2020.

Household spending stagnated in Q1, marking the worst result since Q4 2021 (Q4 2022: +1.1% s.a. qoq). Government spending growth was the slowest since Q1 2022, expanding 0.5% (Q4 2022: +1.2% s.a. qoq). Meanwhile, fixed investment growth improved to 1.1% in Q1, from the 0.7% increase logged in the prior quarter.

Exports of goods and services fell 1.8% on a seasonally adjusted quarterly basis in Q1, which contrasted with the fourth quarter’s 0.9% expansion. In addition, imports of goods and services deteriorated, contracting 1.3% in Q1 (Q4 2022: +1.1% s.a. qoq).

On an annual basis, economic growth slowed to 1.9% in Q1 from the previous period’s 3.2% increase. Q1’s reading marked the slowest expansion since Q1 2021.

The economy is projected to rebound in qoq terms in Q2 as lower inflation boosts private consumption. Consumer spending should be further supported by accelerating wage growth in April and improved consumer confidence over April–May, as well as the energy price caps in place since the start of January. That said, higher interest rates from the ECB and the downturn in the German economy will drag on output.

On the outlook, Marcel Klok from ING commented:

“Public consumption is quite likely to become one of the main drivers of growth in 2023, with very high spending ambitions set by the coalition agreement. Recently proposed austerity measures (in the Spring Budget, in response to higher than projected interest rate costs) were so limited that this expectation has hardly changed. All in all, subdued but positive growth seems like the most plausible scenario for Dutch GDP this year.”