The Netherlands: Limited lockdown impact lifts growth in 2022

Q4 GDP figures, released on 15 February, showed stronger growth than anticipated. We expected a modest contraction in GDP due to new Covid restrictions at the end of 2021, while the data showed that GDP expanded by 0.9% qoq (Eurozone: 0.3%). The main surprise was the relatively mild drop in private consumption (-0.1% qoq). Worries over the spread of the Omicron variant led the Dutch government to impose new restrictions in November and a lockdown in December. The Netherlands had, relative to European countries, among the strictest measures in place. Despite this, consumption was curbed to a lesser extent compared to previous lockdowns. Consumers showed flexibility by continuing to spend in sectors that faced restrictions (by going online) and, given the high vaccination rate, consumers continued buying goods and services in sectors that remained open. In contrast, in previous lockdowns consumers stayed at home much more.

Q4 growth was further driven by investment. Investment data has been less straightforward to interpret. Q4 investment (+2.6% qoq) increased significantly. This was long anticipated, as despite the rebound in sentiment, investment had been hampered throughout 2021 by the tight labour market and global supply bottlenecks. Government consumption also expanded in Q4, despite the fact that normally during lockdown periods regular healthcare is scaled down which suppresses government consumption. With the fourth quarter now published, 2021 growth came in at 4.8%, following the drop of 3.8% in 2020. Compared to the pre-pandemic level (measured by the fourth quarter of 2019) the level of GDP is now 2.7% higher.

Looking ahead, the strong fourth quarter also carries over to growth in 2022. Given the recent announcement that the Dutch government will lift all restrictions on 25 February, we have revised our growth forecasts upwards, from 2.6% to 3.1%. Downside risks to growth stem mainly from abroad. Higher energy prices fed into inflation which spiked to 7.6% (HICP) in January. This could erode the purchasing power of consumers going forward. That said, the inflation figure assumes that every single month every household starts a new energy contract, whereas about half of the Dutch households have fixed term contracts. While energy prices surged 90% according to the inflation figure, AAB transaction data shows that household expenditure on utilities ‘only’ increased by 30% (see graph above). Therefore, the near-term effects on purchasing power will be less than can be inferred from the headline inflation figures. Other headwinds persist from both supply chain bottlenecks and the tight labour market. We expect investment growth to be backloaded in 2022 as supply chain bottlenecks ease of the course of 2022, which should be a tailwind for investment. Finally, as discussed in this month’s Global View, no significant easing is expected on the labour supply front. Some relief is expected when the COVID-19 government support packages are phased out, but tightness is here to stay and will constrain growth for the foreseeable future.