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Netherlands: Economic contraction 0.5 percent in Q1

Christian Fernsby |
According to the first estimate conducted by Statistics Netherlands (CBS), in Q1 2021 gross domestic product (GDP) contracted by 0.5 percent relative to the previous quarter.

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This economic contraction was mainly caused by declining household and public consumption. However, higher investments and an increased trade balance cushioned the contraction. In Q1 2021 GDP was still 3.4 percent below the pre-pandemic level.

Households spent 3.5 percent less in Q1 than in Q4 2020. Public consumption fell as well, by 1.5 percent. Investments were up by 3.7 percent. Exports and imports of goods and services increased by 1.6 and 1.3 percent, respectively.

Lower economic activity, in particular in the sectors of government, education and care and culture, recreation, sports and other services, played a major role in the quarter-on-quarter GDP decrease. On the other hand, construction, business services and manufacturing made positive contributions to economic development.

According to the first estimate, GDP contracted by 2.8 percent relative to Q1 2020. The year-on-year contraction was mainly due to lower household consumption. However, public consumption and the trade balance contributed positively.

In Q1 2021, consumers spent 8.5 percent less than in Q1 2020. This is mainly because the lockdown was longer and stricter than in the first quarter of 2020. In addition, 2020 was a leap year with an extra shopping day in the first quarter.

Consumers again spent significantly less on accommodation and food services, recreation and culture, and transport; they also spent less on clothing, footwear, home furnishings, passenger cars and motor fuels. On the other hand, they spent more on food, drinks, tobacco and energy than one year previously.

Public consumption grew by 1.1 percent. Especially collective consumption (e.g. public services such as police, defence and public administration, which cannot be attributed to individual citizens) was up compared to Q1 2020. Government expenditure on health care, education and social security rose as well.

In Q1 2021, the volume of investments in fixed assets was 0.3 percent down on the same quarter last year. Investments were mainly down in passenger cars, office buildings and infrastructure; on the other hand, a year-on-year increase was seen in machinery, computers and in research and development.

Exports of goods and services in Q1 2021 were 0.7 percent lower than in Q4 2020. The export of services (including expenditure by foreign visitors to the Netherlands) was considerably lower than one year previously.

On balance, goods exports were higher year-on-year with the fastest growth seen in exports of machinery and chemical products. Domestic exports grew by 1.8 percent while re-exports (exports of previously imported products) were up by 7.1 percent.

Imports of goods and services declined by 1.6 percent, on account of services (including spending by Dutch travellers abroad). Imports of goods were up. On balance, the trade balance made a positive contribution to economic growth.

In the sectors of trade, transportation and accommodation and food services, the value added (i.e. output minus consumption of energy, materials and services) was down by 6.7 percent year-on-year. Due to the continuing lockdown, accommodation and food services (esp. hotels, restaurants, cafés and catering) and the transport sector (esp. passenger transport) still experienced a major contraction. However, production in the trade sector was up on one year previously.

Likewise, the impact of measures against the spread of coronavirus was visible in the sector culture, recreation, sports and other services, where the value added was 36.5 percent lower than twelve months previously. Within the business services sector, production in the temporary employment and travel sector plummeted in particular. The value added of the business services sector as a whole was down by 3.9 percent year-on-year.

The value added in the care sector decreased on balance by 0.2 percent. The municipal health services realised a substantially higher production of care on account of the coronavirus crisis.

Furthermore, the production level of mental healthcare institutions has returned to a normal, pre-pandemic level.

On the other hand, the lower production of hospitals is due to fewer patient contacts, fewer referrals and fewer operating rooms in use.

Nursing and care homes and youth care institutions also had lower care production.

Finally, the childcare centers were closed from December 16, 2020 to February 7, 2021 inclusive (during this period emergency care was still available for certain groups of children, such as those of parents with essential occupations).

The value added of the construction sector contracted by 1.8 percent whereas manufacturing grew by 2.6 percent. The growth of the manufacturing sector can mainly be attributed to the machinery industry.

The first estimate is published 45 days after the end of a quarter and is conducted based on information available at that moment. It provides an initial picture of the state of the Dutch economy. After the first estimate, new data continue to pour in which are used to make new calculations.

The second estimate on economic growth will be released on Thursday 24 June.

In absolute terms, the adjustment of the second estimate relative to the first estimate has averaged nearly 0.04 percentage points over the past five years, with the two extremes ranging between -0.2 and 0.1 percentage points.

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