RaboResearch - Economic Research

Sector prognoses: Better next year

Economic Quarterly Report

  • Strongly varying developments between and among sectors in the Netherlands
  • Full recovery will only come in 2022 for a lot of sectors
  • Developments are driven by both the business cycle and factors specific to corona
  • We publish prognoses for added value for eleven main sectors
  • Additionally we provide revenue prognoses for a great number of underlying subsectors

With the second wave of corona crashing over the shores, we reach the sector prognoses for the fourth quarter. The impact of the virus is becoming ever clearer, as are the effects on economic production in 2020. The 4.2% GDP contraction expected for the Netherlands this year is historically low, but still mild considering that the Dutch were advised to stay home throughout much of the year. Home has proven to be a relatively good place to produce and consume. Nonetheless, many have been hit hard by the economic decline, both citizens and businesses.

We anticipate a partial recovery next year. With macroeconomic growth at 2.4 percent, production in 2021 would still be 1.9 percent below added value in 2019. We forecast that production levels will return to pre-corona levels in 2022, and thus as much value as before will then be added to the economy.

In making the sector prognoses we assume that the government measures will still be relatively strict in the first quarter of 2021, followed by minor relaxations. We also count on the vaccine being widely available mid-2021. See our Economic Quarterly for a more detailed look at our assumptions and macroeconomic forecasts.

Table 1: Sector prognoses: Added value developments
Table 1: Sector prognoses: Added value developmentsSource: Statistics Netherlands and RaboResearch
Note: The added value is the revenue minus the value of all semi-manufactured goods and services used during production.

We also publish subsector-level revenue prognoses (in Dutch), which provide insight into the various developments in the main sectors.

Sectors are recovering at different tempos

The detail of the macroeconomic turbulence can be seen in the sectors. Since it is hard to generalize in this context, we have divided them into three groups.

The first group is made up of the hardest-hit sectors: hospitality, transportation & storage, and other business services. These sectors are expected to contract in 2020, respectively, by 39%, 14%, and 16%. Next year's starting point for growth will be so low for these three sectors that a full recovery will be impossible in 2021.

The second group consists of a large number of sectors whose added value will shrink this year at a percentage of between -2 and -6. This group can be further split in two based on the rate of recovery expected in 2021. Education, healthcare, and ICT will recover fully in 2021, while recovery will occur more gradually in manufacturing, retail, and specialized business services.

The third and separate group is reserved for construction and agriculture. Although there has been little to no contraction in these sectors during 2020, shrinkage is coming in 2021. Construction is typically a late-cycle industry. The low number of tenders and construction permits support this expectation. Furthermore, compared to other sectors, the agriculture sector is somewhat less dependent on the economic cycle, which helped keep it out of harm's way this year. But we do anticipate contraction for the agriculture sector in 2021.

Other business services stuck between a rock and a hard place

Business services can be divided into specialized and other services. Of the two, the crisis is giving other business services the hardest time. With added value contracting 16 percent in 2020, the crisis is pummeling the sector, with only a slow recovery of 6 percent expected in 2021. The underlying subsectors are rental of moveable property, temp-placement and employment agencies, travel agencies and travel organizations, security and investigator services, cleaning companies and gardeners, and finally, a group consisting of diverse other business services.

Figure 1: Service providers are not optimistic
Figure 1: Service providers are not optimisticSource: European Commission

The most significant reduction in activity has occurred in the travel and employment subsectors. But with office buildings empty, security services and cleaning companies have also seen their earnings drop considerably. The pressure did not come just from corona but was compounded by the fact that customers account for their services, such as temping, as variable costs.

Production in these sectors also relies heavily on their end markets; cleaning companies and employment agencies that work in the healthcare sector are performing extremely well.

Retail: Though spending less, consumers are also spending differently

Figure 2: Online racing ahead of offline
Figure 2: Online racing ahead of offlineSource: Statistics Netherlands

The fact that the economic consequences of the corona crisis differ from those of a ‘regular’ cyclical dip can be seen from developments in the retail trade. Consumer behavior has changed, and with it, consumption patterns. We are consuming less but we are also spending our money on different things. Hardware and DIY stores, garden centers and furniture stores all took a bigger piece of the pie, while overall spending on clothing and shoes decreased. In 2021, we expect the trend to shift the other way. Growth in the home-related sectors during 2020 is partly attributable to the many lockdowns and will not maintain the same rate for long afterward. In 2021, moderate economic circumstances will have a negative effect, especially on purchases that consumers can easily postpone. Clothing and shoes, on the other hand, can start to grow again, from an exceptionally low basis. That means that consumers will at least partly return to their previous spending patterns in 2021. The shift from offline to online has been evident for a long time and is set to accelerate. Retailers and wholesalers, for whom we see similar developments on the horizon, should respond to this change with further digitalization.

An inhospitable year for hospitality

Almost 40 percent of economic activity in the hospitality sector is expected to have vanished into thin air this year. We saw it happen with our own eyes as restaurants, bars, and hotels closed their doors. At least delivery services had a good year, as did the vacation parks that profited from tourists remaining in the Netherlands instead of traveling abroad. The number of bankruptcies stayed low thanks to government support packages, payment holidays, and extra loans. Chiefly because of the last two factors, however, the average financial position has not improved. In 2021 we do not anticipate a complete recovery for the hospitality sector. Despite extensive support from the government, it’s clear that the sector is making great sacrifices in this pandemic.

Boyd Biersteker
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO
+31 6 1113 5180

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