Eco Perspectives

Emergency package to protect jobs and businesses

04/07/2020

The Netherlands

Confidence plummeted in March

As a result of the coronavirus, the economic climate has seriously deteriorated. Producer confidence plummeted in March, as enterprises anticipated a sharp decline in activity. In particular, consumer oriented branches such as retail, hospitality and travel reported sharp deteriorations in the business climate. In the manufacturing sector, businesses still reported well filled order books and low inventories of final products. However, these positive signals are likely to disappear as the country is in lockdown.

GDP Growth and inflation (Y/Y, %)

An emergency plan

The government has taken a raft of measures to support employees, self-employed and businesses. In order to protect salaries, companies that expect a decline of at least 20% of their turnover, can apply for a wage subsidy amounting to a maximum of 90% of the salary for three months for both permanent staff and flex workers under condition that no workers will be dismissed. Self-employed can receive a benefit of maximum EUR 1500 per month.

To avoid liquidity problems, enterprises that have difficulties in getting bank loans or bank guarantees can get a loan guarantee from the state. Starters may obtain a deferment of their reimbursements for 6 months. Moreover, companies may apply for tax deferment.

The budgetary costs of the emergency plan are substantial, possibly between EUR 10-20 billion per quarter. The government estimates that the costs of the short-time work scheme on its own could already at EUR 10 billion, if 25% of employers applied for it for 45% of the wage bill for three months. This is affordable even if the crisis would last for several quarters. In 2019, the budget surplus amounted to EUR 14 billion (1.7% of GDP) and the public sector debt was only 48.6% of GDP.

As a result of the crisis, public debt will rapidly increase in the coming months as tax receipts fall and social security benefits are set to increase. Moreover, the government might have to increase its participation in some struggling companies. Fortunately, the government finances are in good shape. The major problem might be an efficient implementation of the loan guarantees and other support measures in the coming quarters.

Output losses could be substantial

As a result of the lockout, activity is expected to contract in a wide range of sectors. The lockout measures in particular affect the services sectors such as hospitality, tourism, and personal services.

Other sectors such as manufacturing might be affected because of supply chain disruption and slumping demand. The Netherlands Bureau of Economic Policy Analysis (CPB) estimates that in the case of a three-month lockdown, economic activity could shrink by 10-15% in Q2. In this scenario, the GDP growth would contract by 1.2% in 2020, compared with 1.4% growth estimated in early March. The government deficit would amount to 1.3% of GDP, whereas the CPB had earlier expected a surplus of 1.1% of GDP.

The CPB might have substantially underestimated the economic consequences of the lockdown. The OECD estimates that for each month of lockdown, annual GDP growth could decline by around 2 percentage points. Assuming a selected lockdown of around 2 months followed by a quick recovery, GDP could shrink by close to 3.5% in 2020. It would make the current recession the severest since the Second World War.

THE EXPERT ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE

Other articles from the same publication

Global
Sudden stop to be followed by a gradual, uneven recovery

Sudden stop to be followed by a gradual, uneven recovery

The COVID-19 pandemic has caused a sudden stop in an increasing number of countries [...]

Read the article
United States
State of emergency

State of emergency

The American people and the US economy will no longer be spared the coronavirus pandemic, no more than any other country [...]

Read the article
China
Is the worst over?

Is the worst over?

China’s population and its economy were the first to be struck by the coronavirus epidemic. Activity contracted abruptly during the month of February before rebounding thereafter at a very gradual pace [...]

Read the article
Japan
Recession on the cards despite new fiscal stimulus package

Recession on the cards despite new fiscal stimulus package

The shock of the Covid-19 pandemic comes hard on the heels of a difficult second half of 2019 for the Japanese economy. Like many others, the country is exposed to the economic fallout from this crisis [...]

Read the article
Eurozone
A new, massive shock

A new, massive shock

The Covid-19 pandemic has triggered a recession in the Eurozone that looks likely to be deep but short-lived [...]

Read the article
Germany
Historic stimulus for fighting corona crisis

Historic stimulus for fighting corona crisis

The German economy has come to a standstill because of the almost complete lockdown. To fight the economic consequences, the government launched a massive stimulus plan to increase spending in the health sector, protect jobs and support businesses [...]

Read the article
France
Massive recessionary shock

Massive recessionary shock

Clearly, 2020 will not be another year of slow but resilient growth as we were forecasting just last quarter. We must now expect a massive recessionary shock triggered by the Covid-19 pandemic [...]

Read the article
Italy
At war with the virus

At war with the virus

The outbreak of Covid-19 hit Italy while the economy was already contracting [...]

Read the article
Spain
Badly hit by the Covid-19

Badly hit by the Covid-19

Spain is Europe’s second hardest-hit country by the coronavirus pandemic, and is likely to suffer a sharp economic contraction this year. The economic impact remains hard to quantify [...]

Read the article
Belgium
Firm government measures support economy but add to long term fiscal worries

Firm government measures support economy but add to long term fiscal worries

Due to the Covid-19 virus our growth outlook declines by 5 percentage points to -3.5% for the whole of 2020, despite government measures to attenuate the impact of the epidemic [...]

Read the article
Portugal
Caught up by the crisis

Caught up by the crisis

After what proved to be a rather mild slowdown, Portugal’s GDP growth ended up in the upper range of expectations at 2.2% in 2019 [...]

Read the article
United Kingdom
Put to the test

Put to the test

Now a global phenomenon, the Covid-19 pandemic reached the United Kingdom relatively late and did not give rise to immediate protective measures [...]

Read the article
Sweden
Resilient but not off the hook

Resilient but not off the hook

After the economic slowdown was confirmed in 2019, the global shock of the coronavirus pandemic will probably drive Sweden into recession in 2020 [...]

Read the article
Norway
The other shock

The other shock

With the coronavirus epidemic and its impact on oil prices, which are plummeting, the Norwegian economy is heading for a contraction in 2020. Exports, which account for 41% of GDP, are likely to be hit first [...]

Read the article
Denmark
Not spared

Not spared

The Coronavirus epidemic is also sweeping Denmark, which has now introduced relatively strict lockdown measures. With its very open economy (exports account for more than 50% of GDP), GDP growth will contract in 2020 [...]

Read the article
Finland
Entering recession

Entering recession

Economic activity will plummet under the impact of the Covid-19 pandemic, but not only via the export channel. The recession could become more virulent if household consumption and production channels were also to freeze up [...]

Read the article