RaboResearch - Economic Research

The Netherlands: Winter dip due to partial lockdown

Economic Update

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  • We expect the economic impact of the partial lockdown to be smaller than the intelligent lockdown last spring
  • Consumer spending and investments will be hit hard
  • Because of the partial lockdown, the government announced extra support in the third support package

The outcome of the US elections is still unknown at the time of writing this monthly. What we do know is that with Biden as president, the US economy will probably grow faster and will therefore likely import more. That would be good news for the open Dutch economy that trades around 17% of its total exports of goods with the US. If Trump remains president, our baseline expectations will not change. Either way the impact of the US elections on the Dutch economy will be felt mainly in the long run.

What does impact the Dutch economy in the short term is the increase in corona infections: positive tests and hospitalizations have increased rapidly recently and the prevalence of the virus as measured in sewage water is at its highest point since measurements started in April. Therefore the government has increased restrictions further and announced a ‘partial lockdown’ starting October 14. This partial lockdown is still less strict than the most stringent phase of the ‘intelligent lockdown’ in the spring. Schools, for example, are still open, as are hairdressers, physiotherapist and other professions that require close proximity to clients. But just as in spring, restaurants and bars are closed. Moreover, office workers are again encouraged to work from home. This time the use of masks in public spaces is also encouraged and retail stores are allowed to deny customers who refuse to wear one. The cabinet expects that the partial lockdown will be necessary until at least December. In addition, as the number of contagions did not decline enough these past weeks, the government temporarily tightened the partial lockdown, starting November 4. During this period public locations like museums an theatres will be closed and the maximum outdoor group size is reduced from 4 persons to 2. On November 18 these additional measures will fade and the Netherlands will move back to the partial lockdown instated in October. Furthermore the government strongly discourages travelling abroad until at least mid-January.

The economic impact of the partial lockdown

In our September baseline, we already assumed an increase of sectoral and local restrictions. However, the partial lockdown is stricter than those assumptions. Therefore, we have downwardly adjusted our GDP forecast. We now expect a stronger decline of 5.7% in 2020 (compared to our previous forecast of -5.2% y/y). For 2021 we now expect 1.7% y/y growth instead of 2.1% (figure 1).

Overall, we expect the economic impact of the partial lockdown to be smaller than the intelligent lockdown for several reasons. First of all, many companies are already prepared for social distancing. Not only are plastic screens in for example retail stores already in place to protect employees and customers, but working from home is now also more established than during the first wave. And secondly, global value chains are less disrupted than in March when factories were closed worldwide.

Nevertheless, consumer spending is expected to be hit hard due to the extra restrictions. With restaurants and bars closed (except for deliveries and take-out), going out for diner or drinks is off the table. Shopping in city centres is now also less attractive, as there are no places open to sit down and have a coffee. Prime Minister Rutte has also expressly emphasized that consumers shouldn’t go out to go ‘fun shopping’. The rise in infections could make consumers more cautious about going shopping anyway.

It will take some time before we get the official household consumption figures reflecting the partial lockdown. But consumer confidence already declined to -30 in October, nearly matching its lowest point in May (figure 2). Investments are also expected to be affected because the new corona measures bring with them increased uncertainty and a general economic setback.

Finally, even though the total economic impact might be smaller, we do expect restrictions to remain in place longer than during the spring.

Figure 1: GDP’s winter dip
Figure 1: GDP’s winter dipSource: Statistics Netherlands and RaboResearch
Figure 2: Consumers again less confident
Figure 2: Consumers again less confidentSource: Statistics Netherlands

Despite the Dutch economy finding itself in the midst of a crisis, the housing market has not lost steam (yet). House prices were again up in September with 8.6% y/y, reflecting the housing shortage and the low interest rate environment. It also appears to be a testament to the effectiveness of the large government support packages, since unemployment is still relatively low so far. This could help explain the apparent detachment of the housing market from the economy. We do expect a correction in house prices, as the economic support packages will slowly fade out and cannot entirely prevent an increase in unemployment, which will lower demand for owner-occupied homes.

Additional government support in the third package

The Dutch government already had a large support package in place, although somewhat less generous than the previous ones. The support for companies depends on their decline in revenue. A rise in infections and increase of the lockdown measures lead to a decline in sales and thus automatically to more financial support. In addition, to further soften the economic pain of the additional lockdown measures, the government enlarged the third support package. Owners of restaurants and bars will be partly compensated for inventory investments and adaptations to comply with social-distancing rules, since they are now forced to close down. Additionally, access to the fixed costs compensation scheme (TVL) for companies has been broadened, and is now available for all sectors. For example, logistics companies can now also apply for the measure. Moreover, some sector-specific issues with the TVL were solved, like for the event industry which experienced difficulties in the way that lost revenues were calculated. All in all, the second wave and related (partial) lockdown will lead to an increase in government support compared to budget.

Table 1: Economic forecast
Table 1: Economic forecastSource: Statistic Netherlands and RaboResearch
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