RaboResearch - Economic Research

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Sector prognoses: Coronavirus will lower production in many sectors in the Netherlands

Economic Report

  • Global growth slowdown and Coronavirus outbreak are affecting Dutch sectors
  • It’s all hands on deck for the healthcare sector
  • We expect substantial contractions in construction, culture, hospitality and transportation
  • The employment agency sector will also be affected
  • We also predict contractions in the wholesale, retail and manufacturing sectors
  • Limited growth is expected in education, specialized business services and the information and communications sector
  • The emergency measures taken by the government and banks are designed to limit long-term economic impacts

The outbreak of the Coronavirus and the measures taken to slow its spread are affecting every sector. Some sectors are only feeling an indirect impact due to their connection with other parts of the economy. Other sectors are taking a direct hit. Based on these sector prognoses we expect the Dutch economy to contract by around 0.2 percent in 2020.

The reduction in business activity will be most intense in March and April. In some sectors and subsectors work has pretty much ground to a halt. Our estimates assume that international freight transport will encounter difficulties but will not be suspended.

Table 1: Many Dutch sectors in the red this year
Figure 1: Many Dutch sectors in the red this yearSource: RaboResearch

We assume that the virus will be under control in the second quarter and that the economy will gradually get back to normal in the second half of 2020 and in 2021. The expectation is that consumers will start spending again and that companies will restart their production and investment plans. This normalization process will take longer in some sectors than in others.

In 2021 most sectors will be back in growth although in many cases this will not make up for the contraction in 2020. On balance therefore, the level of activity in 2021 will be below 2019 levels in several sectors.

These prognoses are subject to much greater uncertainty than usual. Economic developments will depend on how the virus spreads and on the measures to combat it moving forward, as well as how quickly government support measures actually kick in.

Health sector: all hands on deck

The burden of disease caused by the pandemic has triggered a steep rise in the demand for healthcare. The number of care workers on sick leave is also on the rise. This means that more employees are being deployed: leave is being cancelled and nurses and doctors who are not currently on the medical register are being called in to help (for instance, recent retirees or medical students who are doing their internships). Huge quantities of protective equipment are also needed. The extent to which all the overtime and extra materials will generate additional turnover will depend on how much of this extra care can be rebilled. At the same time, some routine procedures are on hold, such as hip and knee replacements, general population screening and non-urgent dental appointments. The sector will have to catch up on this delayed demand for care at a later date. The social care sector is switching from face-to-face to telephone and virtual contacts. Childcare facilities have closed but the government announced Friday 20th of March that parents who have already paid for that period will be compensated. On balance in 2020 growth in the health and social care sector will outpace earlier expectations.

Biggest contractions in Hospitality, Culture, Construction, Ornamental flowers and Transportation

In these sectors growth will be transformed into a sharp contraction which will be most severe in the second quarter. These sectors will not be able to recoup any of the damage in the third and fourth quarters since people tend not to rebook services they weren’t able to use first time round. For instance, travel plans or museum visits that had to be cancelled. 

Businesses in the hospitality, culture and recreation sectors are being dealt severe blows. At the time of writing, restaurants, bars, theaters and museums are closed. Additionally, hotel turnover has fallen sharply as tourists and business travelers cancel their trips. Almost all events have been cancelled and the signs are that it could be some time before the situation returns to normal.

In the agriculture sector, the ornamental flowers segment is feeling the most severe impact of the collapse in global demand. Food production is holding steady. However, some bottlenecks could arise, for instance in the soft fruits harvest if migrant workers stay away from the Netherlands.

In the transportation sector the primary impact is on passenger traffic, particularly airline traffic as country after country closes its borders. To a lesser degree passenger traffic on the ground is also suffering. For instance, the number of people taking the train has fallen sharply. However, the impact on income is partially mitigated by the fact that income flows from different forms of season ticket are still coming in.

Construction affected on several counts

The construction sector was already encountering problems due to the nitrogen policy measures and must now deal with the Coronavirus outbreak. There is also a labor shortage in the sector which will be compounded if migrant workers leave the country. For instance, increasing numbers of Polish builders are returning to their homeland according to anecdotal evidence (in Dutch only) from the EIB (Dutch Economic Institute for the Building Industry).

The sector also faces potential supply problems. Take products made in China (such as solar panels) which are needed to keep projects running. There could also be delays in new building permit applications or getting new projects started, which would hamper recovery later this year and in 2021.

Specialized business services, Wholesale and retail trade, and Manufacturing are feeling the effects

Manufacturing companies are facing various supply chain problems. But the virus is alsoaffecting their sales. Because on the one hand their sales regions are‘locked down’, and on the other handindividual customers are postponing investments for the time being. Engineering is one of the subsectors facing both supply and distribution problems. But furniture producers, the transport and consumer electronics sectors are also losing turnover which they will find hard to recoup. Various car manufacturers are closing their European production lines. Added to which some companies are apparently delaying non-essential maintenance to slow the spread of the virus, which again means less work for the repairs sector. In other words, the problems in manufacturing are manifesting themselves at multiple links in the production chain.

Within the business services sectorthe mostseverely impacted businesses are employment agencies and travel companies. These fall into the category ‘other business support’. Employment agencies working in sectors affected by the outbreak are experiencing rapid drops in income with clients no longer needing temporary staff. Employment agencies can fall back on the new temporary measure to keep people in employment, the Temporary Emergency Bridging Measure for Sustained Employment (referred to in Dutch as NOW  ‘Tijdelijke Noodmaatregel Overbrugging voor Werkbehoud’[1]).  This replaces the previous unemployment benefit during short-time working scheme. Nonetheless we cannot rule out the possibility that many temporary contracts will be terminated since generally temporary contracts can be terminated in Phase A (i.e. when a person has worked less than 78 weeks for the same agency) if the client doesn’t have enough work.

The Coronavirus is having a forcible impact on non-food wholesale and retail since demand has fallen sharply.  A limited proportion of sales in both food and non-food is shifting from bricks and mortar to online channels. For certain product categories the fact that people are now postponing their purchases means they will never in fact be bought: not all the lost turnover can be made up later in the year.

This contraction in non-food is being partly compensated by a surge in food-retail. Approximately a quarter of all the business in the trade sector is food -related, such as supermarkets and wholesalers in food and agricultural products. Within the food wholesale sector, specialist suppliers to the hospitality industry are being badly affected. In contrast, hoarding by consumers is causing a temporary spike in supermarket turnover, albeit accompanied by some logistical headaches.

Taking all these factors into account, we predict a limited contraction year-on-year for the entire Trade cluster.

[1] The new temporary measure Temporary Emergency Bridging Measure for Sustained Employment (NOW, Noodfonds Overbrugging Werkgelegenheid) will provide financial help for employers to help pay their employees' wages. The unemployment benefit during short-time working scheme has been cancelled. People canot apply for this scheme yet, but everything is being done to make the scheme available as soon as possible.

Education, Specialized business services and ICT: some business but not ‘as usual’

Relatively speaking the virus is not hitting these sectors as hard. The economic downturn could generate more advisory assignments in ICT and Specialized business services – including accountancy, law firms, and consultancies.

The business services and ICT sectors also have more options for adaptation compared to other sectors. Many of their activities can carry on with employees working from home. For Education there is naturally a greater impact on how things are organized. There is a shift from teaching in the classroom to distance learning online, but this will have limited economic impacts on the sector.

Measures for jobs and the economy

The Dutch government has announced an emergency package of measures to safeguard people’s jobs and incomes. The measures are explained in detail on the government website. The banks have also stated that they will play an active role in providing the liquidity that businesses need. For instance, SMEs which were healthy prior to the Corona crisis are being  offered a six-months postponement for the repayment of their existing loans.

These measures will not prevent the Dutch economy from going into recession in 2020 but they will serve to limit permanent economic effects.   

Box 1: Government measures in a nutshell

  1. Temporary Emergency Bridging Measure for Sustained Employment (NOW);
  2. Extra support for self-employed persons without personnel (zzp-ers);
  3. Payment extension for tax payments and reduced fines;
  4. Extension of business loan guarantee scheme (GO);
  5. Interest rate reduction for small businesses with a loan from microcredit provider Qredits;
  6. Temporary guarantees for businesses in agriculture and horticulture;
  7. Consultations on tourist tax and the culture sector;
  8. Compensation for sectors that are hard-hit.
Lize Nauta
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO
+31 6 8311 4525
Boyd Biersteker
RaboResearch Data Science Rabobank KEO
+31 6 1113 5180
Leontine Treur
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO
+31 6 1024 5424

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