Coronavirus impact: Netherlands bracing for deep recession with up to 9.4% unemployment

The coronavirus will definitely cause a recession in the Netherlands, according to a report central planning office CPB released on Thursday. The CPB calculated four scenarios depending on how long the measures to curb the spread of Covid-19 will remain in place, and all four scenarios resulted in a recession. In the best case scenario, the Dutch economy will shrink 1.2 percent this year, in the worst case it will shrink 7.7 percent. In three of the four scenarios, the shrink will be greater than in the 2008/2009 financial crisis, CPB said.

"Corona is primarily a health crisis. Measures to contain the spread of the virus are necessary, but it is clear that they have a profound impact on the economy," CPB director Pieter Hasekamp said. "At the same time, much is still uncertain. We do not yet know how long the current measures will remain in force, nor do we know the exact impact on the economy, because such measures have never been seen before." Which is why the CPB worked out four scenarios.

In the best case scenario, the measures around curbing the coronavirus will be in place for 3 months. That will result in the Dutch economy shrinking 1.2 percent in 2020, and growing again 3.5 percent next year. Unemployment will be around 4.0 percent this year and 4.5 percent next year.

In the worst case scenario, there will be 12 months of restrictions, and additional problems from abroad and in the financial sector. In that case the Dutch economy will shrink 7.3 percent this year, and shrink 2.7 percent next year. Unemployment will climb to 6.1 percent this year and 9.4 percent next year.

The other two scenarios are in between the best and the worst. Scenario two has six months of restrictions, with economic decline of -5 percent this year, and growth of 3.8 percent next year. Scenario three is six months of restrictions, with additional problems. That will result in economic decline of -7.7 percent this year, and growth of 2 percent next year.

The emergency measures the government is taking to support the economy, will result in public financing deteriorating sharply in all scenarios, though public debt is not yet in the danger zone. In the worst-case scenario, government debt will reach 73.6 percent of GDP at the end of next year - still well away from levels that are considered risky, the CPB said

On Tuesday, Hasekamp already told the Telegraaf that the coronavirus and the measures taken to curb its spread would almost certainly result in a recession for the Dutch economy. "We are still calculating, but a recession is almost inevitable," he said. "At the moment, public health is paramount. But it would be weird if we did not also worry about the economic consequences now."

Earlier this month the CPB forecast said that the Dutch economy would grow 1.4 percent this year, provided that the coronavirus was brought under control quickly. If not, the previous prediction had economic growth at 0.9 percent or even less.

Rabobank and Klaas Knot, CEO of Dutch central bank DNB, also said that a recession is likely in the current circumstances.