Investment in Netherlands

Netherlands - Investment

Economy contracts at record-breaking pace in Q2

GDP fell 8.5% quarter-on-quarter on a seasonally-adjusted basis in Q2 (Q1: -1.5% qoqsa), with the economy entering recession for the first time since the second half of 2012. Moreover, the print marked an all-time low. On an annual basis, the Dutch economy shrank 9.3%, which is the strongest fall on record and significantly sharper than the first quarter’s 0.2% decrease.

Domestic demand was hard hit in the quarter by the global health crisis and its associated containment measures. Household spending was the biggest drag on the economy, falling a staggering 10.4% (Q1: -2.6% qoqsa). This new record low came on the back of measures that limited consumers’ ability to spend. Meanwhile, fixed investment also nosedived, contracting 12.4% in Q2 (Q1: +0.6% qoqsa) amid increased economic uncertainty. Lastly, government consumption dropped 3.0% over the prior quarter (Q1: -1.5% qoqsa).

On the external front, exports of goods and services decreased 9.8% in the second quarter, down from the first quarter’s 1.9% drop, as global restrictive measures and weakened trade flows suppressed foreign demand. Imports, meanwhile, dropped 8.3% in the second quarter, down from the first quarter’s 2.0% fall.

Looking at the year as a whole, the economy is expected to shrink at the steepest rate since at least World War II, although fiscal stimulus should soften the blow and the economy should recover somewhat in the second half. Moreover, the balance of risks remains tilted to the downside amid a possible full-scale second wave of infections, and Brexit-related uncertainty as the EU and the UK continue to deliberate over their future relationship and trade agreement. Developments in the German economy will also have a key bearing on Dutch GDP.

In addition, Marcel Klok, senior economist at ING, points to an expected rise in unemployment and bankruptcies going forward as firms adjust to the shock, stating “it will likely take years rather than a few quarters for the economy to fully recover.”

FocusEconomics Consensus Forecast panelists see GDP contracting 5.7% in 2020, which is unchanged from last month’s projection. For 2021, the panel forecasts the economy to expand 3.9%.