Netherlands

The cyclical momentum is very strong in the Netherlands. Production expectations in the manufacturing sector are at a record-high level. Order books stand close to 2017 highs. Similarly to other European peers, consumer confidence is buoyant in the midst of a wider reopening of the economy and high levels of accumulated savings. We expect consumption to be the main driver of growth in 2021, with 1.8% of GDP of catch-up effects by year-end. In addition, fixed investment is also likely to grow fast (more than 5%). in 2020, direct liquidity support from the government was one of the most significant within the Eurozone, covering all the losses in value added of non-financial corporates. To this, EUR40bn of state-guaranteed loans were given. Current cash positions of non-financial corporates stand at 2% of GDP. Exports have remained resilient since late 2020 and we expect the widespread recovery among major trading partners (Belgium, Germany, France, the UK) to push exports up by close to 5% in volume terms. Overall, we expect EUR36bn of additional export gains in the Netherlands. More than 70% of the 2021 export gains for Dutch companies will be registered in energy, chemicals, machinery & equipment, metals and transport services.

We expect GDP growth to reach at least +3.1% in 2021 and +4.2% in 2022. Pre-crisis GDP levels will be reached by mid-2022. Total pent-up demand is estimated at EUR45bn or 5% of GDP, one of the lowest levels within Western Europe, of which EUR17bn is in retail, transportation and food and accommodation services, EUR5bn in leisure services and EUR4bn in manufacturing. The construction sector is already above pre-crisis levels and housing prices are growing fast (+15.6% y/y in Q1). Residual savings are estimated at EUR55bn, which will be in part directed into the buoyant residential market. Inflation surpassed 2% y/y in May 2021 and we expect it to reach 2.2% on average over the year.

Political fragmentation remains a hurdle for reform momentum in the medium run

The general election on 17 March 2021 continued the trend of fragmentation in Dutch politics seen throughout the post-war period: 17 parties are now represented in the House of Representatives (the lower house of parliament), up from 13 in 2017. Forming and maintaining stable coalition governments has become increasingly difficult. In recent years, relative political continuity has been achieved by Prime Minister Mark Rutte, who has led three successive governments since 2010.

The ongoing talks for a governing coalition have delayed the submission of the Recovery Plan to the EU Commission. The Netherlands would get EUR6bn in grants, or 0.8% of GDP. Netherlands could take up loans worth up to 6.8% of its 2019 GNI though there are no incentives to take up EU loans as their cost of borrowing is already 50bp lower than the EU’s. Overall, the government expects a further EUR37.3bn (4.5% of GDP) of additional fiscal spending, but we expect some backlog for 2022. The fiscal balance is expected to revert to surplus only in 2023. - June 2021