Netherlands country note: OECD Economic Outlook, May 2021

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Netherlands The Dutch economy is projected to grow by 2.7% in 2021 and 3.7% in 2022, reaching pre-crisis levels at the beginning of 2022. Consumption will drive the recovery as households normalise their saving after the sharp increase in 2020. Private investment will improve, but continue to be held back by lingering uncertainty.

Bankruptcies are expected to rise and unemployment is set to peak in the second half of 2021 following the phasing out of support measures.

Fiscal policy should remain supportive until the recovery is well established, focussing on retraining and career counselling services to facilitate economic restructuring and ease job transitions. Public investment, supported by Next Generation EU recovery funds, should focus on accelerating the green transition to reach the country’s ambitious emission reduction goals and foster digitalisation. For the medium term, the government should carefully evaluate structural spending increases and design in advance a multi-year fiscal plan to be implemented once the recovery is self-sustained to address emerging fiscal pressures from population ageing and related healthcare expenditures.

The Netherlands is still in the second wave of the pandemic The Dutch health situation remains challenging, but is slowly improving. Despite months-long restrictions, including a nightly curfew and the closure of most non-essential businesses, the number of daily cases per million population has not fallen below 200 since autumn 2020. However, on the back of plateauing hospitalisation numbers, the government decided to lift the curfew, allowing non-essential businesses to open under certain conditions and allowing outdoor seating areas at restaurants and cafés to reopen partially by the end of April. Conditional on improving hospitalisation numbers, restrictions are set to ease gradually. By mid-May, around 30% of the population had received at least the first vaccination dose, and it is expected that everyone aged 18 or older who wants to be vaccinated will have received their first shot

by July 2021.

Netherlands Economic growth will be picking up

Mobility is held down by restrictions

Real GDP Index 2019Q4 = 100, s.a.

110

% change from 3 Jan - 6 Feb² 10

Index, 100 = max 100

Current growth path Pre-crisis growth path¹

105

80

-10

100

60

-30

95

40

-50

90

20

-70 ← Oxford stringency index Google retail and recreational mobility trends →

85

2020

2021

2022

0

0 -90 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21

1. The pre-crisis growth path is based on the November 2019 OECD Economic Outlook projection, with linear extrapolation for 2022 based on trend growth in 2021.

2. Fourteen-day moving average.

Source: OECD Economic Outlook 106 and 109 databases; Oxford COVID-19 Government Response Tracker (Hale et al., 2020); and Google LLC, Google COVID-19 Community Mobility Report.

StatLink 2 https://stat.link/to7ral

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021

110 

Netherlands: Demand, output and prices

StatLink 2 https://stat.link/9ut8nc

The economic impact of restrictions has been less severe during the second wave Economic output contracted by 3.7% in 2020, less severe than expected partially owing to a high degree of digitalisation and teleworking already before the pandemic. The economic downturn in the fourth quarter of 2020 was less pronounced than during the first wave, even though containment measures were stricter.

Businesses and workers were able to adapt swiftly by relying more on teleworking, click-and-collect and home delivery. The negative economic impact during the second wave has been limited to consumption and the services sector, as reflected in low mobility near retail and recreation locations since the beginning of 2021. By contrast, industrial production and goods exports have been increasing and producer confidence has recovered. Policy support measures have helped to prevent a wave of bankruptcies and cushioned the increase in unemployment in particular for workers on permanent contracts.

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021

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Support measures to businesses and workers have been appropriate The government extended and put in place additional measures after imposing tighter restrictions during the second wave. Most importantly, the wage subsidy scheme was extended, the coverage of fixed costs for all sectors was increased and the planned means test for self-employed income and loan scheme was suspended. In addition, the self-employed were able to benefit from temporary support for necessary costs if these could no longer be paid due to a decline in their income. Support measures were also adjusted, putting a focus on facilitating restructuring and job relocation of workers. Employers benefitting from the wage subsidy scheme have to incentivise employees to retrain or reskill and support workers facing dismissal to find new work. Amongst other measures, the government therefore launched a temporary subsidy scheme for learning. Within the self-employed support scheme, municipalities provide training or retraining and reorientation to the self-employed. The government plans to gradually phase out these support measures in the second half of 2021, while maintaining an appropriately supportive fiscal stance.

Business taxes accrued in 2020 are deferred by up to two years, and interest on overdue taxes will remain at almost zero until December 2021.

The economy is set to recover contingent on improvements of the health situation Output growth is projected to recover to 3.7% by 2022. Following high household saving in 2020 for higher income groups and the working population, pent-up demand will drive the initial pick-up. However, increased pension premiums and rising unemployment, as support measures are phased out, will hold back private consumption growth. Private investment will recover somewhat as financing costs are low and earnings expectations improve, but the increase will be moderate due to continued uncertainty and considerable spare capacity. Public investment will grow strongly over the course of 2021 and 2022 reflecting planned spending increases on infrastructure, climate and housing. Public debt will continue to rise from 54.5% of GDP in 2020 to 58.8% of GDP in 2022. While a faster-than-expected vaccination is a clear upside risk, there remain several downside risks. Increased leverage of businesses during the crisis could damp productive investment, hampering the recovery. Rising house prices could add to already high household debt, increasing macroeconomic vulnerabilities. The economy is also sensitive to global trade developments.

Fiscal policy should remain supportive to aid the recovery Fiscal policy should remain supportive until the economic recovery is well underway. The crisis has exacerbated pre-existing inequalities. Students from disadvantaged backgrounds fell further behind during school closures and workers on flexible contracts have been disproportionally affected by job termination.

A substantial additional spending on schools aimed at reducing learning gaps within the newly established National Education Programme is a first step. Aligning tax rates and social security contributions between contract types for workers doing similar jobs could lead to greater equity on the labour market. Going forward, workers should be prepared for the restructuring of the economy through retraining and reskilling opportunities, including the implementation of personal learning and development budgets (STAP) from 2022, open to the entire working-age population. The Dutch government recently launched the National Growth Fund, making available EUR 20 billion as grant over the next 5 years for investments that contribute to economic growth, such as knowledge development, infrastructure, research and innovation.

Public investments should further focus on addressing long-term challenges, notably facilitating the green transition and digitalisation, including expanding renewable energy generation capacity and reducing nitrogen emissions from agriculture.

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021