Perspectives

Sufficiently deep pockets for stimulus

Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)  
economic-research.bnpparibas.com  
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8
THE NETHERLANDS  
SUFFICIENTLY DEEP POCKETS FOR STIMULUS  
Economic activity contracted less than in the neighbouring countries (-8.5%). Hard data confirm a rebound in Q3,  
although social distancing rules are weighing on activity, in particular in services. Thanks to the substantial financial  
buffers, the government can cope with the considerable costs caused by the Covid-19 pandemic. In 2021, the deficit  
is projected at around 5% of GDP and the debt ratio may end up just above 60%. The centre-right coalition is likely  
to lose the majority at the next general election in March 2021. If the social democrats and greens do well, a purple  
coalition would be possible.  
REBOUND AFTER LOCKDOWN  
Economic activity contracted sharply in Q2 by 8.5%. This compared  
GROWTH AND INFLATION (%)  
favourably with the neighbours Germany (-9.7%) and Belgium  
(
-12.1%), where lockdowns were stricter. Since May, the economic  
GDP Growth  
Inflation  
climate has gradually improved, in line with the easing of the lockdown  
restrictions. However, the economic sentiment indicator, on a rising  
trend since May, was still 5% below its long-term average.  
Forecast  
Forecast  
5
.0  
.0  
3
.5  
2
.7  
2
.4  
3
1
.7  
1.6  
1.6  
Hard data confirm the gradual improvement of economic activity.  
In July, industrial production was almost 6% lower than a year ago,  
compared to around -12% in April-May. In some parts of the services  
sector, the rules on social distancing have prevented the reopening of  
businesses or slowed their activity. In the hospitality sector, sales were  
almost 60% lower in Q2 than a year ago. By contrast, retail sales have  
been booming since the reopening of shops. In July, the sales volume  
was 7% higher compared to a year earlier.  
1
.2  
1.0  
1.0  
3.0  
5.0  
7.0  
-
-
-
-
-5.4  
The government’s emergency package launched in March has  
proven to be effective in preserving businesses and employment. The  
unemployment rate inched up to 4.5%, only 1 percentage point higher  
than before the crisis thanks to the extensive use of the furlough  
schemes NOW and Tozo (for self-employed). In the period June–August  
these schemes were used for 1.4 mn workers, i.e. 16% of the working  
population.  
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
CHART 1  
SOURCE: BNP PARIBAS GLOBAL MARKETS  
POLITICAL UNCERTAINTY AHEAD  
FISCAL POLICY TO REMAIN VERY ACCOMMODATIVE  
It will be difficult to form a government after the next general election  
to be held in March 2021. According to the polls, Prime Minister Rutte’s  
party VVD (conservative liberal) will remain the largest, but his centre-  
right coalition will lose the majority. Moreover, the extreme right  
parties PVV and FVD are projected to gain about 25% of the vote. If the  
social democrats and greens make a good score, a return of a purple  
coalition – a coalition without the Christian democrats – would be a  
possibility. A long formation period lies probably ahead.  
Thanks to the substantial financial buffers, the government can  
cope with the substantial costs provoked by the Covid-19 pandemic.  
Discretionary measures and automatic stabilisers might have  
negatively affected the government budget by almost EUR 70 bn (or  
8
2
.7% of GDP). As a result, a budget deficit of 7.6% of GDP is expected for  
020. The debt ratio, which also includes direct loans and tax deferral,  
could increase to around 60% of GDP compared with 49% in 2019.  
In September, the government presented the 2021 Budget. The econo-  
mic situation requires a very accommodative fiscal policy. Neverthe-  
less, the deficit is projected to be slightly lower than in 2020 (5% of  
GDP), as some discretionary measures end. The debt ratio is projected  
to increase further to 62% of GDP.  
Households will benefit from tax reductions, which were already de-  
cided before the Covid-19 outbreak. However, the business sector will  
be confronted with tax increases as support measures end and due  
to the scrapping of the projected reduction in the corporate tax rate.  
In 2021, purchasing power will increase on average by 0.8% against  
2
.2% in 2020. In particular, middle-income households and those with  
children will benefit.  
The government has announced the setting up of a National Growth  
Fund for knowledge development, infrastructure, research and innova-  
tion. An independent commission will approve the projects. The size of  
the fund will be a total of EUR 20 bn for the period 2021-2026, of which  
EUR 1 bn to be spent in 2021.  
The bank  
for a changing  
world  
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