Investment in Netherlands

Netherlands - Investment

Economy grows at strongest pace on record in Q3, but remains below pre-Covid-19 level

According to a preliminary reading, the economy rebounded in the third quarter, with GDP growing 7.7% on a seasonally-adjusted quarter-on-quarter basis, contrasting the 8.5% contraction seen in the second quarter. The print was the strongest on record and driven by the relaxation of lockdown measures, unleashing pent-up consumer spending. Strengthening foreign demand also made a notable contribution.

The upturn reflected faster growth in private consumption, public spending and fixed investment. Household spending increased 9.4% in the third quarter, which contrasted the second quarter's 11.3% contraction. Government spending grew at the fastest pace in over a decade, expanding 6.3% (Q2: -3.1% s.a. qoq). Fixed investment growth hit an over five-year high of 6.3% in the quarter, swinging from Q2’s 11.3% contraction.

Turning to the external sector, exports of goods and services rebounded, growing 8.6% in Q3 (Q2: -10.3% s.a. qoq). In addition, imports of goods and services grew 6.8% in Q3 (Q2: -9.5% s.a. qoq), marking the best reading since Q2 2015.

On an annual basis, GDP fell 2.5% in Q3, easing from the previous period's 9.4% fall. Notably, economic activity remained below its pre-pandemic level, with the economy contracting 3.0% in the first three quarters compared to the fourth quarter of 2019.

After suffering the sharpest downturn in economic activity since at least World War II at the hands of the global pandemic, the economy is forecast to recover next year on the back of strengthening domestic and external demand. However, next year’s upturn will be partly due to a supportive base effect and a possible prolonged viral outbreak still poses a downside risk, particularly given the recent surge in Covid-19 cases in Europe. Additionally, lingering uncertainty over the future trade relationship between the European Union and the United Kingdom clouds the outlook further.

Commenting on the outlook for the final quarter of this year, Marcel Klok, senior economist at ING, stated:

“Recently reinstated social distancing measures will push down services again in 4Q20. All in all, a general decline in GDP in 4Q20 seems unavoidable, as both domestic and foreign demand will take a step back.”

FocusEconomics Consensus Forecast panelists see GDP expanding 3.5% in 2021, which is unchanged from last month’s projection. For 2022, the panel forecasts the economy to expand 2.5%.