RaboResearch - Economic Research

The Netherlands: Economic Recovery Continues

Economic Update


The floods in western Europe have also afflicted the Netherlands. In Limburg, the southernmost province of the Netherlands, cities experienced severe water damage in July as heavy rainfall caused rivers to overflow. Next to this, the Netherlands experienced a small setback corona wise. Relaxations of restrictions, such as the reopening of night clubs at the end of June, were short-lived. Early July some of these relaxations were already rolled back as infection rates increased sharply (see Figure 1). This (re)tightening of some of the restrictions had a relatively minor impact on the economy. Fortunately, the occupancy of intensive care beds did not increase as dramatically (see Figure 1). This is probably because infections occur mainly among young people while vaccination coverage continues to rise. Therefore we do not expect any further restrictions and we stick to our assumption that by the final quarter enough people will have been vaccinated to remove all restrictions impeding economic activity. We expect the Dutch economy to grow with 3.5 percent year-on-year in 2021.

Figure 1: Weekly confirmed cases rose sharply after new relaxations
Figure 1: Weekly confirmed cases rose sharply after new relaxationsNote: Confirmed cases are presented as 7-day moving average (MA) while occupation is measured as a 3-day MA Source: WHO, LCPS Source: European Centre for Disease Prevention and Control
Figure 2: Consumption continues recovery
Figure 2: Consumption continues recoverySource: Statistics Netherlands

Economy remains on track for recovery

In May consumption increased by 8.8 percent year-on-year, reflecting a further recovery of private consumption as more restrictions were lifted. In our transaction data we see this recovery continuing in June. For this year, we forecast a 2.5 percent year-on-year increase in consumption.

Although unemployment continues to decline – to 3.2 percent in June – we expect unemployment to rise when the support packages are anticipated to be phased out in the fourth quarter. This is expected to lead to some downward pressure on household consumption.

Besides consumption, Dutch exports also continued to recover, increasing by 34 percent year-on-year in May. This is mainly due to the economic recovery in the Netherlands' largest trading partners.

This export recovery is also mirrored by the Dutch manufacturing sector, which depends on international demand. The sector was able to repeat its strong production results in May (see Figure 3), despite disruptions in worldwide supply chains. Manufacturing production had already fully recovered at the beginning of this year and increased again by around 1 percent month-on-month in May. We expect the sector’s value added to increase by 4.5 percent year-on-year in 2021, although concerns regarding the availability and prices of commodities remain.

Figure 3: Manufacturing production at record high
Figure 3: Manufacturing production at record highSource: Statistics Netherlands
Figure 4: Inflation decomposition
Figure 4: Inflation decompositionSource: Statistics Netherlands

Lower inflation in July

Supply chain disruptions have led to worldwide commodity shortages and price increases. It is likely that Dutch businesses will eventually pass on their higher costs to their customers. These developments have already led to speculation about whether supermarkets will raise their prices. The weight of food and non-alcoholic beverages in inflation is about 16 percent, making it one of the most important components.

Meanwhile, the government has frozen social rents from July 1, 2021 to June 30, 2022. This has a downward pressure on inflation because also housing is an important component in the Consumer Price Index. In addition, the increase in demand due to the reopening of the economy has not yet resulted in general upward inflationary pressure. Both factors play a role in explaining why inflation rose only 1.4 percent year-on-year in July, compared to a 1.7 percent year-on-year rise in June.

We expect the factors causing the upward pressure on inflation to be temporary. Together with the freezing of social rents, we do not expect higher increases in the Consumer Price Index than in the first half of this year. We foresee inflation to increase by 1.8 percent year-on-year this year.

Table 1: Economic forecasts
Table 1: Economic forecastsSource: Rabobank
Lize Nauta
RaboResearch RaboResearch Netherlands, Economics and Sustainability Rabobank KEO
+31 6 8311 4525

naar boven