Economic dip driven deeper by second (and third) wave

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The coronavirus crisis has pushed economies worldwide into a severe recession. The Dutch economy is no exception but hasn’t seen its gross domestic product (GDP) fall by as much as most surrounding countries.

ABN AMRO’s Group Economics does not see the economic dip bottoming out yet or expect a recovery any time soon. These are the findings in its report on the economic outlook in the Netherlands published this week (in Dutch only).

Group Economics has adjusted its forecast for 2020 downwards. The economy will shrink by 5.6 percent this year. Senior Economist Nora Neuteboom explained why: “In September the Netherlands had one of the highest rates of coronavirus infection per 1,000 inhabitants. This will put the Dutch economy among the weakest eurozone performers in terms of GDP growth for the third quarter. A slight recovery of 4.3 percent will be visible compared with the sharp fall in the second quarter.”

Real recovery after the third wave

“Until an effective vaccine has been developed and rolled out, the economy will keep running at 95 percent of capacity and we won’t see any catch-up growth gaining traction,” was Nora’s clear message. “We’re working on the basis of the WHO’s prognosis that a vaccine will be available by mid-2021 and fully rolled out by the end of that year. On top of the restrictions relating to the virus and caution among consumers and business owners, the second-round effects will also weigh more heavily next year.”

Higher unemployment, a leaner financial environment and corporate bankruptcies will dampen the growth recovery. “Also, we are factoring in another round of the virus early in 2021. It may be smaller and cause less economic damage than the second wave, but it will still put the brakes on the recovery in the first half of 2021,” Nora continued.

Catch-up growth starting second half of 2021

Wide-scale access to a vaccine will fuel business and consumer confidence again in the second half of 2021. Businesses will ramp up their production capacity and investments and consumption will get a boost too, but the rebound will be limited.

The reason for this is the worrying situation around unemployment, which could reach 8.5 percent at the end of 2021. Many large companies and multinationals have announced reorganisations that will contribute to this figure. Overall, economic growth is expected to be 2.1 percent in 2021. This means GDP will not have returned to pre-coronavirus levels by the end of 2021.

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