Perspectives

Waiting for a new government

nd  
Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
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9
THE NETHERLANDS  
WAITING FOR A NEW GOVERNMENT  
Thanks to healthy government finances and a light lockdown strategy, the Netherlands weathered the crisis better  
than the surrounding countries. Nevertheless, the economy was in a mild recession in Q1 2021. Economic sentiment  
indicators point to rapid recovery in the second half of the year. Despite the clear victory of the outgoing government  
at the general election in March, the formation of a new coalition is in turmoil. Doubt has increased whether Mark  
Rutte can lead his fourth government in succession. The main task of the coalition is to put a recovery programme  
on the rails.  
MILD RECESSION IN Q1 2021  
The government’s light lockdown strategy announced in March 2020  
initially paid off. In 2020, the economy contracted 3.7%, –similar to the  
fall recorded during the financial crisis in 2009– but this compared  
favourably with the surrounding countries. As the number of infections  
rose rapidly after summer, a second partial lockdown was imposed  
from mid-October. The measures have been progressively tightened  
in the following months. The imposition of a curfew in January led to  
unprecedented violent protests and pillaging in many places in the  
country.  
GROWTH AND INFLATION (%)  
GDP Growth  
Inflation  
Forecast  
Forecast  
4.0  
4
.0  
.0  
2.7  
3
1.7  
2.0  
1.4  
1.3  
1.1  
0.7  
1
.0  
.0  
The economic impact of the second lockdown is likely to be much  
more limited than in March-May 2020. In Q4 2020, GDP contracted by  
0
-
1.0  
2.0  
0
.1%, largely due to a fall in household consumption (-1.4%). A further  
-
contraction (-0.5%) is expected in Q1 2021. By comparison, in Q2 2020,  
GDP contracted by 9%. The reason is partly due to the effectiveness of  
the policy responses to the crisis. Thanks to the furlough schemes, the  
unemployment rate declined to 3.6% in February after having peaked at  
-3.0  
-4.0  
-
3.0  
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
4
.6% last August. In the same month, the number of bankruptcies was  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
even at its lowest level for 30 years. Moreover, as household savings  
have increased to historically high levels due to limited consumption  
possibilities, house prices have been rising sharply. As elsewhere in  
Europe, the business climate improved in March, on the back of rising  
world trade. However, consumer confidence moved sideways.  
Despite the important gains of the pro-EU party D66, the government  
will remain circumspect about deepening the European integration  
given the progress of the anti-EU parties in parliament.  
UNCERTAINTY CONCERNING GOVERNMENT FORMATION  
LIFTING SUPPORT MEASURES MAY PROVOKE BANKRUPTCIES  
In March, the conservative liberals VVD led by prime minister Mark  
Rutte remained the largest party at the general election. The social  
liberals (D66) came surprisingly second. Technically, it would be  
possible to continue the outgoing centre-right coalition with the  
Christian Democrats (CDA and CU), despite heavy losses of the CDA.  
However, the chaotic first phase of the formation process suggests that  
it can take some time before a new government is in place. After losing  
In the coming months, as Covid-19 cases are expected to come down,  
lockdown restrictions could be lifted gradually. Household demand is  
likely to be one of the major engines for growth in the coming quarters  
as savings rates will return to pre-crisis levels. In the course of 2022,  
the economy could be back at pre-crisis level.  
At the same time, the government is likely to withdraw gradually . This  
could cause problems for some enterprises that have been kept alive  
by transfers, loan guarantees and furlough schemes. Bankruptcies are  
expected to rise, in particular among companies that were already  
weak before the health crisis. For this reason, employment conditions  
could again deteriorate and unemployment may even rise to 5% of the  
labour force by the end of the year. As a result, collectively agreed wage  
increases could slow to 1.5%.  
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seats and plagued by inner divisions, the CDA might be reluctant to  
join a new coalition. The social democrats (PvdA) and Green/Left are  
keen to join a new government, but this would imply a change in policy.  
Moreover, severely criticised by his former coalition parties during  
a parliamentary debate on the formation, Mr Rutte runs the risk of  
becoming an obstacle in the formation process. In general, the forming  
of a new government takes several months. The longest formation -  
that of the outgoing government - lasted 225 days. Speed is called for,  
as the country needs a new government to put a recovery programme  
on the rails.  
Completed on 1 April 2021  
Whatever the outcome of the formation process, the new government  
will continue its prudent budgetary policy. Thanks to the country’s  
healthy financial position at the outset of the crisis, the government  
was able to support the economy better than the surrounding countries.  
The bank  
for a changing  
world  
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