Dutch economy expected to bounce back swiftly after COVID-19 crisis

Economic recovery to pick up strongly from the second quarter of 2021

The assumptions underlying the projections are that social distancing measures will be gradually lifted in the Netherlands from May 2021 onwards, and that massive vaccination will eliminate their need from early 2022. Economic recovery is projected to gain significant traction from the second quarter of 2021, in parallel with the easing of restrictions, mainly driven by private consumption. Set against our projections six months ago, the outlook has become markedly brighter, even though the pandemic and social distancing measures have developed less favourably than we had expected in December 2020. We expect Dutch GDP to top its pre- pandemic level in the fourth quarter of 2021. This means projected recovery should be swifter than that after the 2008 financial crisis.

Unemployment will not rise above 4.5%

If support measures are scaled back after the third quarter of 2021, employment will initially decline slightly, only to pick up significantly over the course of 2022. With jobs easier to find by then, more people will enter the labour market, thereby temporarily boosting growth in labour supply. Unemployment will rise as a result, from 3.6% in 2021 to 4.5% in 2022. As the economy recovers further, unemployment should fall back to 4.1% in 2023.

Higher inflation

Inflation is projected to go up from 1.1% in 2020 to 1.5% in 2021, due in part to a higher oil price. Inflation should remain at 1.5% in 2022 and rise to 1.8 % in 2023, in line with increasing labour market tightness.

Policy recommendations related to the projections

With social distancing measures being scaled down and the outlook for the economy being brighter, the government will be able to unwind its support packages after the third quarter of 2021. After all, policies aimed at restoring the business cycle will be unwarranted. At the same time, public finances will remain under control and spending cuts will not be needed. However, the incoming government must address more structural challenges, which had already presented themselves before the COVID-19 pandemic, such as the energy transition and the bottlenecks in the housing and labour markets.

Two pandemic scenarios: mild and severe

Given the greater-than-usual uncertainty surrounding our projections caused by the pandemic, the Economic Developments and Outlook again include two pandemic scenarios in addition to the baseline projection. In the mild scenario, annual GDP growth in 2021-2023 ends up 0.4 percentage points higher on average, compared with the baseline projection. This assumes that the pandemic will be fully contained from the autumn of 2021 onwards and that the economy will recover more swiftly, fuelled by factors that include households spending a larger share of excess savings. In the severe scenario, we assume that social distancing measures will be needed well into 2023, for example because new virus variants emerge that prove resistant to existing vaccines, or because the vaccination programme proves to be insufficiently effective. In this scenario, annual GDP growth in 2021-2023 is on average 1.1 percentage point lower, compared with the baseline projection.

For more information, please contact Bouke Bergsma by telephone at +31 20 524 3797 or +31 653 258 400.