Dutch Economy Shrinks for 2nd Quarter, Recession Fears Grow

The country’s national statistics bureau said Wednesday that the Dutch economy has officially entered recession after shrinking every quarter for the second consecutive time. The contraction was mainly due to weaker consumer spending and a decline in exports, the Central Bureau of Statistics (CBS) said. The Dutch economy contracted by 0.3 percent in the second quarter of 2023, compared to the first three months of the year, when it fell by 0.4 percent.

Domestic consumption in the Netherlands significantly contributed to the drop in GDP, as Dutch households spent less on furniture and clothing. But CBS pointed out that spending in areas like culture and leisure rose during the same period. Meanwhile, the Dutch economy’s performance abroad also worsened as exports declined and imports grew, resulting in a net trade deficit of -0.7 percentage points.

This was mainly due to decreased goods exports, whereas service exports grew slightly more than in the previous quarter. A negative contribution from the trade sector was also seen in the second quarter as a result of the higher prices for oil and gas.

Despite the adverse economic developments, CBS emphasized that the Dutch economy is still growing faster than other EU economies. The economy in the Netherlands’ neighbors France and Belgium grew during the last quarter, while European economic powerhouse Germany stagnated. Caretaker Economic Affairs Minister Micky Adriaansens insisted that the Dutch economy’s foundation remains strong, with unemployment close to all-time lows at 3.6%. “For every hundred job-seekers, there are 122 jobs,” he said.

The Dutch economy has been weighed down by labor shortages, muted demand from Europe’s trading partners, and steep interest rate rises as the Central Bank seeks to tame inflation. The news that the country has slipped into recession comes as it grapples with political uncertainty after the ruling coalition resigned over the summer. A national election is scheduled for late November, and forming a new government could take some time.

As the country enters recession, the Dutch government has been working on various measures to stimulate growth. Earlier this year, it introduced a tax break for companies investing in machinery and equipment. It has also set aside a billion euros to boost infrastructure projects like high-speed rail links.

A recession is two consecutive quarters of falling gross domestic product (GDP). During a recession, economic activity contracts, leading to job losses and slower economic growth. The economy can recover from a recession by increasing its level of economic activity again, such as through an increase in consumer spending or a rise in exports. In addition, the government may introduce stimulus measures to help support the economy. These measures can include tax breaks, investment aid, and other spending on public services. Recovery from recession is likely to take some time, as the effects of the Covid-19 pandemic wane and labor market restrictions are lifted.