Dutch macro perspectives – Dutch recession continues in Q3

The Dutch economy contracted by 0.2% qoq in Q3. Following contractions in Q1 (-0.5% qoq) and Q2 (-0.4% qoq), this means that the economy has shrunk during three consecutive quarters. The Dutch economy underperformed the eurozone total (-0.1% qoq) in Q3. The contraction was driven by weak (private) investments and stock depletion. The labour market remains very tight, although labour demand is softening.

Looking at the main components of GDP, weak external demand drove exports into negative territory (-1.6% qoq) in Q3. As imports contracted even more, net exports lifted total GDP growth by 0.3 pps. High interest rates and still elevated inflation currently are weighing on the eurozone and Dutch economy. Since 2022Q3, the eurozone economy (the Netherlands’ main export market) has roughly stagnated. Whereas the Dutch economy initially continued to expand, this has changed since the start of 2023, when weak external demand started to have an impact on Dutch exports. On top of that, global industrial weakness has also affected the Netherlands, with industrial sales contracting sharply qoq. External demand is not likely to reverse course soon, as the eurozone and global growth outlook remains subdued.

Turning to final domestic demand, fixed investments contracted (-1.8% qoq) in Q3, on the back of lower growth prospects and higher interest rates, which particularly hit investment in housing and real estate. In contrast, government consumption contributed positively to GDP growth (+0.6% qoq). Despite the caretaker status of the government, fiscal policy has continued to support growth. Household consumption stagnated in Q3. The sharp rebound in services consumption following the pandemic has come to a halt, with services consumption stagnating in Q3. Prospects for private consumption are moderately positive. Although consumer sentiment is still deeply negative, inflation has passed its peak and is falling, while wage-growth is still elevated, the housing market has bottomed-out, and the government will continue to support purchasing power in 2024.

Zooming out, the economy of the Netherlands initially outperformed the eurozone total during the post-pandemic rebound. More recently, however, three consecutive quarters of contractions in GDP means that the Netherlands now is lagging behind the eurozone. We continue to expect growth to remain sluggish during the rest of the year and well into 2024, on the back of tight monetary policy and weak eurozone growth prospects. We are currently revising our growth forecasts and will include them in our global outlook, which will be published in early December. (Aggie van Huisseling, Jan-Paul van de Kerke)