Sector forecasts: Many sectors back to full speed

Most Dutch sectors did well or even extremely well in the second quarter. Our forecasts for (the remainder of) this and next year are also favorable but there are concerns about shortages of materials and labor. The number of vacancies in the Netherlands hit a record high due to a unique combination of structural and temporary factors.

Our sector forecasts assume that rising vaccination levels will increasingly bring the virus under control. The government will then be able to end almost all restrictions which hinder business turnover in the fourth quarter of this year, except for the events sector, bars and nightclubs. Our Economic Quarterly gives a more detailed analysis of the implications for macro-economic spending components such as consumption.

There are clear differences in the forecasts per sector. The degree to which sectors have recovered from the corona dip varies: industry, for instance, has already fully recovered while hospitality is still catching up (Figure 1). In some sector categories there may also be major differences between subsectors. In fact, for certain sectors we now forecast a more rapid recovery this year than was expected.

In-depth sector review and turnover forecasts

An in-depth review of different subsectors and turnover forecasts is given here (in Dutch).

The positive outlook is one reason why the Dutch government has announced that generic corona support measures will be discontinued from 1 October 2021 (including the Emergency Measure for the Preservation of Jobs (NOW), and the Temporary Emergency Measure for Self-employed Persons (Tozo). Targeted measures are being developed for the events sector and nightclubs and from quarter 4 the government will relax the rules on social assistance for the self-employed (BBZ).

The rapid recovery in the second quarter pushed vacancy levels in many sectors to record highs.

The current tight labor market stems from a unique combination of structural and temporary factors. A key structural factor is the ageing demographic, which reduces the labor supply and pushes up demand for staff in the care sector. The preference for part-time work in the Netherlands is another structural factor.

There is also a temporary ‘corona-effect’ at work. As a result, labor migration to the Netherlands fell and students decided to stay in further education longer. The corona effect also hampered the flow of trainees into work placements. But the most significant impact on the labor market came from government measures. The support packages ensured that bankruptcies stayed at very low levels and that many people were able to keep their jobs - even when there was less work for them to do.

While many flex workers lost their jobs at the outbreak of the pandemic, many of them were able to find corona-related work in test and vaccination facilities or call centers. All these factors kept unemployment low and there are now more vacancies than people unemployed.

In our base case scenario, we assume that the current extreme labor market shortage will not last long. Once the temporary factors disappear, we will be back to a situation of ‘normal’ shortages. Which will once again require attention to a more inclusive labor market and investment in (retraining) and automation. In particular, shortages of teachers and IT staff could put a brake on the Netherlands’ capacity for innovation and productivity growth.

Accompanying the labor shortages are substantial wage rises, especially in construction. Wages in industry are also rising faster than the national average. To date we have seen little- to-no rises in real wages in other sectors. Added to this, construction and industry are experiencing shortages of raw materials and intermediates due to supply chain disruptions. But other sectors are also facing higher purchase prices and longer delivery times.