Consumer spending, public debt fuel fears of deep recession in Dutch economy

Low consumer spending and high levels of public debt threaten to cast the Dutch economy into rocky waters going forward, according to findings from both Statistics Netherlands and the International Monetary Fund (IMF) this week. The warning signs come on the heels of months of economic difficulty brought about by the outbreak of Covid-19 in the Netherlands, which have resulted in high levels of unemployment and a slumping GDP.

Adding to the pile of economic woes is a slowdown in consumer spending. In the first quarter of 2020, the amount of disposable income in the hands of Dutch households was 1.6 percent higher than it had been over the same period last year, according to new figures from Statistics Netherlands on Tuesday. In effect, the research group said, saving rates in the Netherlands have therefore increased, partly as a result of the sharp fall in consumer spending brought about by Covid-19.

Because consumer spending is the driving force of economic activity, the Dutch GDP shrank by 1.5 percent in the first quarter of 2020 when compared to the previous quarter at the end of 2019, according to Statistics Netherlands with the contraction mainly being due to the decline in household consumption.

According to the IMF, this trend is taking place slightly faster than had been anticipated, with a total decrease of as much as 7.7 percent being expected for the entirety of 2020. The IMF, which had predicted back in May that the Dutch economy would contract by 7.5 percent this year, has since revised down its initial outlook, adding that the country will likely make a strong recovery in 2021.

In addition to an ailing GDP, the Dutch economy is seeing higher-than-usual levels of public sector debt. According to Statistics Netherlands, government borrowing was run up by 8.5 billion euros in the first quarter of this year, amounted to almost half (49.5 percent) of the country's entire GDP. 

Furthermore, a portion of the public spending appears to have been squandered, according to Minister of Economic Affairs and Clime Eric Wiebes, who announced on Wednesday that as many as 120 companies that received more than 6 million euros in support money as part of the NOW scheme to be able to continue to pay their staff have since declared bankruptcy, according to NU.nl