The Netherlands: Third quarter showed small contraction

This morning, Q3 GDP data for the the Netherlands was published. GDP contracted by 0.2% qoq in Q3, following 2.4% expansion in Q2, and versus a 0.2% expansion fore the eurozone as a whole in Q3. Fixed investments was particularly negative in Q3 (-1.7% qoq). Looking at the decomposition of investment, the contraction was broad-based, with investment in transportation as well as investment in housing and infrastructure falling. The drops in investment in housing and infrastructure are influenced by higher interest rates and environmental constraints, respectively. Despite high inflation and a falling consumer confidence, private consumption and inward tourism still contributed positively to growth.

Looking forward

For the next two quarters we continue to expect modest contractions in Dutch GDP. The decline in GDP will be driven by a further deterioration in the external environment, which will slow down exports. Moreover, final domestic demand will be hit by the erosion of household disposable income and the squeeze in corporate profitability due to high food and energy bills, a rapid tightening of financial conditions and aggressive central bank rate hikes. Indeed, private consumption in the Netherlands already contracted by 0.7% mom in September. Compared to the eurozone in total, the Netherlands has several bright spots that remain in place: excess savings during the pandemic have not been fully spent yet and the labour market, although showing signs of cooling, is still very strong. Therefore, we expect the contraction in Dutch GDP in 2022Q4 and 2023Q1 to be milder than the eurozone in total, where we expect contractions of 0.6% qoq in Q4 as well as in Q1.