NL Macro - Q1 GDP contraction mainly driven by weaker external environment

This morning, Q1 GDP data for the Netherlands was published. GDP contracted by 0.7% qoq in Q1, following a 0.4% expansion in Q4 - which was revised downward from 0.6%. Growth was lower than the eurozone average (0.1% qoq in Q1). Today’s figures show a weakening external environment while domestic demand is slowing but stays resilient for now.  Indeed, the trade balance turned negative with exports (-1.8% qoq) contracting by more than imports (-1.3%). Goods exports drove this overall decline while services exports recovered further from pandemic lows. In the wake of slowing external demand companies further depleted their stocks, implying that the change in inventories reduced overall GDP growth. External demand is expected to remain weak during the rest of the year, as eurozone private consumption  and global trade are expected to slow down, which will limit demand for Dutch exports.

On the domestic side of the economy demand has remained resilient for now. The government contributed positively to growth via additional spending compared to the past quarter. Private consumption stagnated (0% qoq) despite high inflation and still very low consumer confidence. Particularly the strength in the consumption of services was already visible in the first months of the year (see here). Dutch households’ spending is supported across all income groups by a still exceptionally tight labour market, accelerating wage growth and government support against loss of purchasing power. As a result, consumption in the Netherlands is expected to stay more resilient than in most other eurozone countries. Furthermore we expect a slowdown in fixed investments in the Netherlands, after it expanded by 1.1% qoq in Q1. Tight financial conditions and declines in demand for credit combined with weaker growth prospects have reduced the investment outlook. We continue to expect growth to remain sluggish over the rest of the year as domestic demand will be increasingly hit by past and upcoming interest rates hikes by the ECB. We are currently revising our growth forecasts and will provide an update in our Global Monthly publication next week. (Aggie van Huisseling, Jan-Paul van de Kerke)