In 2020, real GDP per capita is set to fall back to the level recorded in 2015 in a single stroke. The biggest adverse effects of the COVID-19 shock are expected to materialise in the second quarter of 2020, reflecting not just the initial shock of the lockdown, but also the knock-on effects on expenditure. Households, businesses and foreign customers are expected to significantly reduce their expenditure amid slumping confidence, mounting uncertainty and loss of income. As private consumption declines by 7.6% in 2020, corporate investment (excluding housing) will slide 13.9%, with exports falling back 10.9%. Government spending should provide some relief, growing by 3.1%. The expenditure categories that contract most in 2020 will show the most pronounced recovery in subsequent years.
Employment is set to suffer severely in both 2020 and 2021. As a result, unemployment will climb to 4.6% of the labour force in 2020, rising further to 7.3% in 2021 and falling to 5.7% in 2022. HICP inflation will be depressed throughout the projection horizon. In 2020 inflation will be low (0.8%) mainly due to the sharp drop in oil prices. Although businesses will face additional costs, in subsequent years the impact of sluggish demand will dominate on average, with inflation merely edging up to 1.1% in 2021 and 1.5% in 2022. The Netherlands’ public finances will see a major reversal in 2020, from a comfortable surplus to a deficit of 6.4% of GDP. Our projections take account of the government measures taken up to and including the second support package of 20 May. The Dutch government will also be in the red in 2021 and 2022. Following a sharp increase of more than 9 percentage points in 2020, the debt-to-GDP ratio will gradually rise in subsequent years, reaching more than 63% in 2022 on average.
The current crisis is characterised by many uncertainties about the further spreading of infections and the nature and effectiveness of future containment measures. Scenarios could be helpful in situations like this, particularly given that uncertainties around our projections are higher than usual. Accordingly, the European Central Bank (ECB) has decided to elaborate two alternative scenarios to illustrate the range of likely impacts of the COVID-19 pandemic on the Dutch economy. They show that GDP contraction in 2020 will range between 3.4% in the mild scenario to 11.8% in the severe scenario. Rather than defining the extreme upper and lower limits to potential outcomes, the scenarios illustrate the large degree of uncertainty around the baseline projection.
For more information, please contact Bouke Bergsma on +31 20 524 3797 or +31 653 25 84 00.