RaboResearch - Economic Research

Slightly less favorable economic outlook due to hard lockdown

Economic Quarterly Report

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  • We have made small downward revisions to our projections for the Dutch economy  for 2020 and 2021 following the announcement of a hard lockdown on December 14
  • For 2020 we now expect the economy to contract by 4.4 percent instead of 4.2 percent
  • Next year the economy is expected to grow by 2.3 percent, instead of 2.4 percent. We expect the economy to grow by 2.7 percent in 2022, instead of 2.4 percent
  • Although the Netherlands is undergoing its strictest lockdown to date with the forced closure of (parts of) essential stores, we expect the drop in activity in the current hard lockdown to be less steep than during the first wave
  • This is amongst other things because the economy is better prepared to operate in the corona situation, international value chains are now less disrupted and government support packages are already operational

The hard lockdown that was announced on December 14 has implications for the Dutch economy and thus our forecasts. We have made a small downward adjustment to our projections for 2020 and 2021. For 2020 we now expect the economy to contract by 4.4 percent instead of 4.2 percent. Next year the economy is expected to grow by 2.3 percent (was 2.4 percent). Moreover, we have increased our GDP growth forecast for 2022 to 2.7 percent (was 2.4 percent). On the assumption that lockdown measures are scaled back in the course of the first quarter and with government support expected to continue, we have made no adjustments to our unemployment rate forecast for now.

Current lockdown stricter than back in March and April

With the forced closure of (parts of) non-essential stores, the Netherlands is undergoing its strictest lockdown to date. Although as we previously expected substantial constraining measures to be present in the coming months, we did not anticipate that the measures would be this restrictive. We had penciled in some alleviation of the constraining measures in the course of 21Q1. However, we now expect that measures in the first quarter of next year will, on average, be as restrictive as those in 20Q4. All in all, this means we are now more pessimistic about the fourth quarter of this year as well as the first quarter of 2021 (Figure 1).

Figure 1: Impact hard lockdown
Figure 1. Impact hard lockdownSource: RaboResearch, CBS (Statistics Netherlands)

Nevertheless, we expect the drop in activity to be less steep than during the first wave. The economy should be better prepared to operate while under lockdown measures. Stores have expanded their capacity to serve customers online and restaurants can more easily switch to delivery and/or take-out. Moreover, international value chains are now less disrupted, and government support packages are already operational. Confidence amongst consumers and business owners should also find support as vaccination programs get started soon and the COVID-19 crisis slowly draws to an end. That said, this second hard lockdown will deal a tough blow to some sectors – such as hospitality and particular retail segments.

Recovery

The recovery could regain traction in the second quarter of 2021. We still expect constraining measures to return to the stringency level we saw during summer 2020 in the second quarter of next year – just as in our previous forecast. Forceful government support ensures that firms can stay afloat and can scale up activity once lockdown measures are alleviated. Generous support also prevents households from experiencing a significant drop in income, which supports demand.

That said, we must wait until the second half of 2021 for a further substantial reduction in the stringency of measures aimed at curbing the spread of COVID-19. At least some of the measures will have to stay in place until a sufficiently large proportion of the population is vaccinated. As such, we expect that economic activity will not return to pre-corona levels before mid-2022.

The spread of the virus, vaccination, test capacity and thus the stringency of lockdown measures are all clouded by uncertainty. Hence, our economic forecasts are also subject to a significant degree of uncertainty.

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