The Netherlands: Lockdown causes sharp decline in private consumption

After a prolonged period of social restrictions, lockdowns and a much debated curfew, many Dutch people have been able to have some fun again. As temperatures dropped below zero and a winter storm covered the country under a blanket of snow, the Dutch could once again go ice-skating on natural ice. A week later, the snow cleared and made way for early springtime sunshine.

The outdoor activities came as a welcome gift after the strict lockdown measures (introduced in December), including closure of non-essential shops, schools and public places, were largely extended until at least March 2. Additionally, a curfew was introduced on January 23, forcing people to stay inside between 9PM and 4.30AM. The government saw it fit to do this as (more infectious) mutations of the virus have become more prominent, with the UK strain estimated to have overtaken the original one in terms of daily infections (figure 1). Starting February 10, non-essential shops were allowed to offer ‘click-and-collect’, under strict conditions. Primary schools reopened at February 8, while secondary schools will need to continue online education until March 1.

The effects of the lockdown are readily observable in economic data. Last week, Statistics Netherlands published the GDP figures for 2020Q4 and the entire calendar year. GDP contracted by 3.8% compared to 2019, which amounts to the largest decline since WW2. In 2020Q4, GDP was substantially lower (2.9%) than a year earlier, but the decline is smaller than in many other EU countries (figure 2). The year ended with a quarterly decline of 0.1% compared to 2020Q3. This decline is largely due to the closure of non-essential shops in December, hampering consumer’s ability to spend.

In December, private consumption decreased 11.9% y/y and an analysis of Rabobank’s transaction data indicates that consumer expenditure is down by 12.5% y/y in January (figure 3). This indicates that consumer expenditures dropped less than during the first lockdown in 2020Q2, despite the curfew and many shop closures imposing more restrictions than in 2020Q2. Other payment methods have increased in importance and compensate for a larger part of the decrease in offline payments than in the first lockdown.

Meanwhile, the sharp decrease in consumption has strong consequences for the non-food retail sector. In December, the entire retail sector suffered a significant revenue decrease of 3.1% y/y, with stark contrasts between subsectors. Especially non-food retailers experienced the detrimental effect s of shop closures and saw their revenue decrease by 22.6% y/y. Even though internet sales skyrocketed (58.3% y/y), small retailers are unlikely to benefit, since it is hard to set up a successful web shop. Shop owners might see some relief in the near future now that ‘click-and-collect’ is allowed and the government will allow shopping by appointment from March 3. At the same time recently expanded government support (+EUR 7.6 billion) might compensate retailers over the first two quarters of 2021.

The negative effect of consumption was partly offset by increased investments in December and higher exports in 2020Q4 (despite export volumes dropping by 0.9% y/y in December), profiting the manufacturing sector. Compared to 2019, manufacturing production was down 0.2% in December and closest to pre-COVID levels since February 2020 (figure 4). The manufacturing PMI also improved in January, reaching a level of 58.8. These numbers need to be interpreted with caution, as supply chain risks are not to be ignored. Whereas international trade and value chains seem more robust than during 2020Q2, delivery times and shipping costs from China to northern Europe have increased last months. Moreover, mutations of the virus have caused other countries to sharpen their lockdowns, which could lead to more pressure on external demand.

At first sight, the situation on the labor market seems to have improved again in January, with unemployment decreasing from 3.9% to 3.6% in comparison to December. These numbers, however, do not tell the whole story, since the labor force also decreased in both months. A large part of this decrease can be contributed to young people (below the age of 25), who are not immediately available for work or actively searching for a job anymore.

With the lockdown extended we expect consumption to stay low for a longer time and hence adjusted GDP forecasts downward from 2.3% to 1.4% for 2021. Moreover, we project GDP to contract in the first quarter that is expected to be in lockdown for most of the time. With lockdown measures to be slowly lifted from March onwards, we expect to see positive growth figures as of 2021Q2. However only in the course of next year economic activity will be back at the pre-corona level. Uncertainty is still large, because a delayed bankruptcy and unemployment wave is still a risk when government support starts to phase out. Second, the vaccination process is still fragile given delivery setbacks and effectivity doubts on new virus strains.

Co-author: Joppe de Bruin (student at Erasmus University Rotterdam and quantitative economic research intern at RaboResearch)