The economic contraction due to Covid beats the Great Depression and the credit crisis

January 3, 2020 by No Comments

It is a list as memorable as it is gloomy: in 1931, in the early stages of the Great Depression, the Dutch economy shrank by 3.6 percent. That peacetime record held for nearly eighty years, until the credit crunch put an end to it. In 2009 the economy shrank by no less than 3.7 percent. At the time, it seemed to entrepreneurs that business had come to a standstill against a wall. Eleven years later, that record has been shattered again. The corona crisis has led to an economic contraction of 3.8 percent in 2020, the Central Bureau of Statistics (CBS) reported on Tuesday.

The first calculations for the entire economic year are showing havoc. The added value – what is earned – in the different industries has been hit by the virus, people’s behavior and the measures that have been taken. Trade, energy, agriculture and real estate managed to squeeze out a small plus. But in the catering industry, more than 40 percent less was earned than in 2019. The cultural and recreational sector had to make do with a quarter less. Transport yielded a sixth less. Even health care took a hit. The corona care was, and is, unprecedentedly intensive. But the postponement of appointments and treatments for other conditions still resulted in a decrease in production by more than 5 percent.

Standstill from above

In this way, 2020 paints a picture of an economy that did not go into crisis on its own, due to speculation or overheating, but one that was forced to a standstill by higher authorities. That had extraordinary effects. And the most striking are those on private spending. Household consumption fell by no less than 6.6 percent. No holidays abroad, no evenings in a bar or restaurant, no theater or festival. Spending on electronics, for example, made up for a lot, but by no means everything. The result, CBS chief economist Peter Hein van Mulligen said on Tuesday, shows how much money households were left with. In the first nine months of 2020, some 60 billion euros were saved, double the same period a year earlier. The slight loss of 57,000 permanent jobs, mainly due to government support measures, helps.

The current year, 2021, therefore seems promising. If everything is allowed again later and all that money, whether or not parked on the stock exchange, comes loose once, a considerable amount of money can be paid rise are expected.

This is where the domain of CBS, which only registers, ends and the territory of the forecasters begins. But the indicators that CBS does collect for the first two months of the year do not bode well. The new, strict lockdown and the fear of the virus and the behavioral changes that it entails are preventing economic recovery for the time being. By mid-February, now, eleven of the thirteen indicators the agency tracks – from investments to confidence and from hours worked to vacancies – are below their long-term average.

It is possible that the first quarter of 2021 will show a contraction. And since there was also a slight contraction in the last quarter of 2020, 0.1 percent compared to the previous quarter, that technically means an economic recession.

Catch-up growth

So the year is off to a bad start. The European Commission stated in its ‘winter forecasts’ on Monday that the Dutch economy will grow by only 1.8 percent in 2021. This is a setback compared to previous forecasts. The bounce-back effect of the corona crisis will take place later – only after the summer. In fact, actual catch-up growth can only be achieved in 2022, at 3 percent.

The statisticians at Statistics Netherlands point to the great uncertainties in determining the economic variables. 2020 was an exceptional year, and adjustments will certainly follow.

The forecasters are having a really hard time. The course of the virus, the speed and effectiveness of vaccinations, human behavior – they are almost impossible to predict. This also applies to as yet unknown ‘scars’ left behind by the crisis, especially the companies that hover between life and death.

Could it have been worse? If you look at other countries in Europe, you will see that it is. Especially the collapse of tourism has had a hard time. France suffered an economic contraction of 8.3 percent in 2020, Italy with 8.8 percent, Greece with 10 percent and Spain with 11 percent. Of course, rebounding is also more intense there, with growth figures of around 5 percent this year. But as far as the past year is concerned, the Dutch decline is actually quite modest. Of all EU Member States, only Finland and the Baltic States shrank less sharply. So that, however scant that consolation may be, the provisional conclusion may be that the Dutch economy has come off relatively well in 2020.