The Dutch economy is finding its way back up this year. Although GDP contracted 0.5% in the first quarter compared to the previous quarter and 1.9% compared to the first quarter of last year, the contraction was much less than feared.

Consumer confidence returns

Consumers are more inclined to spend, since they can leave the house vaccinated and the risk of infection has been reduced. Families also saved a lot last year, because they had few opportunities to spend money. Corona put a stop to holidays and other fun things like the theatre, the pub and eating out. Those who kept their jobs and incomes were able to save considerable amounts of money as a result. On average, Dutch households will have saved an extra EUR 5,500 by 2020.

Yet we do not expect all the extra savings to be released at once. This is because it is mainly accumulated by wealthier households, who will probably put the extra money into assets.

Furthermore, the sector that was hit hardest during the corona crisis, the service sector, hardly suits catch-up spending. All those missed appointments at the hairdresser’s in the past year will not be made up again. Nor the missed restaurant visits and holidays, if only because the number of holidays and free evenings is limited. All in all, we expect consumers to spend a fifth of their additional savings next year.

This does not detract from the fact that many households are in pretty good financial shape. According to CBS figures, net financial assets per individual increased by EUR 2,900 to EUR 16,000 last year, one of the highest in Europe. In addition, housing wealth is rising due to higher house prices.

The combination of low interest rates, growing interest among investors, the adjusted transaction tax rate for first-time buyers, changing living preferences due to the shift to working from home, the lack of new-build homes and the relaxed lending conditions is propping up house prices further and further. Due to the increase in value, home owners will experience more room to spend money.

Government ready for even more support

There have recently been signals that the government wants to spare companies with deferred tax debts (totalling EUR 16 billion). The balance sheet problems are heavily concentrated in sectors that have been hit hard by the lockdown, such as the hospitality and culture sectors.

For the time being, the plan is that companies will have to repay the deferred tax debt in five years from 1 October 2022 at an increasing interest rate. In the longer term, however, public debt relief seems to be a possibility on the condition that private lenders are also willing to write off debt. How and what will only become clear when a new government is formed.

The public support contributes to a further increase in public spending, especially when combined with investments from the Growth Fund and plans for additional spending to tackle educational and health care deficits. In line with this, the deficit and debt-to-GDP ratios will increase this year. Next year, when GDP is back at its 2019 level and state aid declines, public finances will improve again.

For this year, we expect a positive contribution of trade to GDP growth. However, this will not translate into an even higher current account surplus which, apart from imports and exports of goods and services, is largely determined by income transfers with foreign countries. These will again be lower this year as profits of Dutch companies abroad are under pressure due to corona. If corporate profits recover next year, the current account surplus is likely to rise again.