Perspectives

Emergency package to protect jobs and businesses

EcoPerspectives // 2nd quarter 2020  
18  
economic-research.bnpparibas.com  
The Netherlands  
Emergency package to protect jobs and businesses  
As the country went into a selected lockdown, business confidence plummeted. To limit the economic fallout, the government  
announced a comprehensive package to protect jobs and businesses, its favourable budgetary position giving it sufficient firing  
power. Nevertheless, each month of lockdown may reduce output growth by around 2 percentage points. In the case of a rapid  
recovery, the GDP shrinkage could be limited to around 3.5% in 2020.  
Confidence plummeted in March  
1
- GDP Growth and inflation  
(
Y/Y, %)  
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  
Forecast  
Inflation  
Forecast  
6
5
4
5.5  
3
2
1
0
1
2
3
4
2.7  
2.7  
1.7  
1.6  
1.7  
0.4  
-
-
-
-
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.  
-
3.5  
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
Source: BNP Paribas Global Markets  
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.  
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.  
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.  
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.  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
Ce site présente leurs analyses.
Le site contient 2485 articles et 640 vidéos