Lockdown extension will push Dutch economy into recession: Economists

If Prime Minister Mark Rutte extends the current hard coronavirus lockdown as he is expected to announce in a press conference on Tuesday, it will push the Dutch economy into a recession, NU.nl reported after speaking to economists from ING and Rabobank.

A recession is when the gross domestic product (GDP) shrinks for two quarters in a row. The economists expect that the economy shrank in the last quarter of 2020, due to the stricter coronavirus measures implemented in October and the lockdown implemented in mid-December. If the lockdown is extended, the GDP will likely also shrink in this quarter.

"We previously assumed slight growth in this quarter, but we are now abandoning that idea," Rabobank senior economist Carlijn Prins said to the newspaper. "And the fourth quarter of 2020 was probably also worse than the previous quarter."

ING macro economist Marcel Klok thinks that in the first quarter this year the economy will shrink to the same level as in the second quarter of 2020, when the economy shrank an unprecedented 8.5 percent due to the pandemic and measures against it.

In the third quarter and the first bit of the fourth quarter of 2020, the economy saw solid recovery. But the strict lockdown that started in mid-Decembe turned that recovery into a new contraction, Klok said. "We think the economy came in at a minus of 2 percent in the last quarter of last year. And for the current period we expect a sharper decline due to the ongoing lockdown. Compared to the period before the Covid-19 outbreak, I think that we'll come out about 10 percent lower in the first quarter of this year," he said to the newspaper.

Despite this gloomy outlook for the first quarter, both economists expect that the Dutch economy will recover quickly once lockdown measures start being lifted and people are getting vaccinated on a large scale. "Both consumers and companies can then spend more. But the longer the lockdown lasts, the slower the recovery. The number of bankruptcies is increasing and more people are losing their jobs."

Prins: "We saw in the summer months that the economy rebounded and largely offset the contraction of the spring. That could happen again this year. Many companies survived and many people have kept their jobs. As a result, the demand for goods and services remains up to standard. We do not expected a full recovery until next year, however."