The second quarter of 2023 saw a contraction in Dutch GDP of -0.3% compared to the first quarter. The Netherlands is currently in a “technical recession” as a result of this contraction, which followed one in the year’s first three months. Domestic consumption and decreased international trade were the main causes of the downturn.
Following a decrease of -0.4% between January and March, the Dutch GDP shrank by -0.3% quarter-on-quarter in the second quarter of 2023.
Additionally, GDP in the second quarter was 0.3% lower than it was in the corresponding quarter in 2022. The primary causes of the quarter-over-quarter loss were declining exports of goods, declining household spending, and rising imports.
With a contraction of -0.7% in the second quarter, the performance of Dutch exports was just as poor as it had been during the first months of the year. This was entirely the result of a 1.4% fall in exports of products, while exports of services increased by 2.5%. Even worse than these figures indicate, net trade contributed negatively (-1.0 percentage point) to GDP growth as imports increased (0.5%) in both goods (0.7%) and services (0.1%).
The strongest drag on GDP growth (-0.7% point) came from households’ declining consumption, which contracted by a very significant -1.6% quarter over quarter. Based on preliminary monthly numbers, this was substantially worse than expected.
Dutch ( Netherland ) consumers spent less on foreign purchases and, contrary to predictions, used fewer domestic services. In keeping with expectations, domestic food, beverage, and tobacco consumption decreased at the same time. However, shoppers from abroad made more purchases in the Netherlands.
Investment excluding inventory adjustments increased by 1.3% as anticipated. Gross capital formation increased significantly from one quarter to the next in non-residential structures (1.2%), machinery and other equipment (2.6%), and transport equipment (9.9%). While there was reduced investment in ICT equipment (-0.5%), infrastructure (-1.0%), and housing (-2.2%), investment in intangible assets (0.2%), such as software, databases, and R&D, stagnated.
Positive changes in inventories made a significant contribution to the growth of the GDP, amounting to 0.9% of the total. This growth caught everyone off guard because, according to previous surveys by the European Commission, a significant portion of manufacturing and retail enterprises have long regarded their inventories as “too large,” therefore it was assumed that they would continue to decline.
Consumption by the government increased by 0.7%. According to the ambitious coalition agreement of the government (which recently disintegrated), this trajectory was expected. Individual final government consumption also showed growth (0.4%), which was notably significant in the collective government consumption (1.3%). According to employment data, the latter may be influenced by consumer spending on both healthcare and education.
Trade, transportation, hospitality, and agriculture sectors are all experiencing contraction.
Agriculture and fisheries experienced the biggest quarter-on-quarter decline among Dutch industries (-4.1%). Because of its scale, the trade, transport, and hospitality sector, which includes retail, which saw a -2.0% reduction in sales volumes, had the most negative impact on GDP growth (-0.4% point). Construction (-0.5%), manufacturing (-0.3% QoQ), and water utilities (-1.5% each) all contributed to the recession. The industries where industrial production shrank the greatest were those producing construction materials, tobacco, drinks, equipment, and basic metals.
Value added increased in the following industries: mining and quarrying (10.9% for oil and gas), energy supply (8.5%), leisure and culture (6.1%), semi-public services (1.2%), business services (0.8%), ICT (0.4%), finance (0.2%), and real estate (0.1%).
Straight ahead
Looking ahead, the GDP appears to be extremely flat, with quarterly growth rates being quite low. At first sight, it doesn’t appear that the second quarter’s numbers much alter the consensus that 2023 will see an increase of a few tenths of a percentage point.
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Although wage growth outpaced inflation, the impact of increasing interest rates and unfavorable global trends continues to cloud the Dutch outlook. We can see that the sentiment index is getting worse, and the change in power could slightly restrict the increase in government spending. We aren’t forecasting a severe recession with high unemployment rates because of the still-tight labor market and the expectation that businesses will hold onto workers.
