The Netherlands - Growth to resume but stay weak in 2024
Growth positive but weak during 2024; external demand to bottom out, with growth driven by domestic demand. GDP revisions showed Dutch technical recession to be slightly deeper, caused by lower consumption. We lowered our HICP forecasts on the back of stronger than expected goods and services disinflation. Bankruptcies have been low since the pandemic, but the December data shows that trend to have turned.
At the start of 2024, the growth outlook of the Dutch economy is still meagre. Backward looking revisions to GDP which were published late December, showed the Q3 2024 contraction was deeper than reported earlier at -0.3% qoq (was -0.2% qoq). Particularly private consumption – which contracted instead of stagnated – and investment were adjusted downwards. These revisions slightly pushed down our annual GDP forecasts for 2023 (0.1%, was 0.2%) and 2024 (0.5%, was 0.6%). Growth is expected to cautiously resume in the final quarter of 2023, for which data is released later in February. Recent figures such as activity trackers and export volume indicators point towards some improvement in economic momentum. All in all, the final quarter of 2024 is expected to show a slight expansion (+0.1% q/q), partly caused by a bounce back from the -0.3% qoq contraction in Q3. Risks however are clearly to the downside, with the broader eurozone – and Germany in particular – showing signs of weakness and associated contractions in GDP (see ).
Over the course of 2024 growth is set to continue but stay weak. We expect the weakness in external demand to bottom out as growth in the eurozone returns to positive territory. The main driver of Dutch growth this year will be domestic demand by the government and households. The government will contribute to growth via expansive fiscal policy. For consumers, declining inflation and strong wage growth has lifted real incomes, which is expected to continue during 2024, raising purchasing power and supporting household spending. The resilient labour market is another supportive factor for consumption. Despite a weak macroeconomic environment, employment has increased steadily over the year culminating in a labour force participation record of 76% in December 2023. More generally, on the back of rate cut expectations financial conditions have eased a bit, which already provides some support for businesses.
In summary, we expect growth to slowly return in 2024 driven by private consumption and government expenditure. External demand is bottoming out and will increase in the second half of 2024 on the back of eurozone growth resuming. Still, 2024 GDP growth remains far below the trend growth rate.
The Netherlands is no exception to the global disinflationary trend. In the final months of the year, the tempo of disinflation has been stronger than expected, particularly in goods and services (excluding housing). Therefore, we have made a downward adjustment to our inflation forecasts of 2024 and 2025. We now expect Dutch HICP to average 2.8% (was 3.2%) in 2024 and 2.4% (was 2.7%) in 2025. As things stand, inflation risks stemming from geopolitical turbulence in the middle-east are limited (see this month’s ), but this hinges on no major escalation of tensions in the region.
In December, bankruptcies ticked above the pre-pandemic average in the Netherlands for the first time since 2021. Since the pandemic bankruptcy rates have been very low due to Covid support, low interest rates and ample consumer demand when lockdown measures were unwound. Up until now, the Netherlands was lagging behind other eurozone countries, where bankruptcy rates passed their pre-pandemic averages sooner. We expect bankruptcies to rise further given the weak growth environment and high interest rates which are yet to impact most businesses.