Economic Developments and Outlook - June 2021

The outlook for the Dutch economy in the 2021-2023 period continues to be dominated by the COVID-19 pandemic, although large-scale vaccine availability and administration suggest that the end is now in sight. The second and third waves of the pandemic, which necessitated additional containment measures, caused the Dutch economy to dip into another recession from the autumn of 2020, albeit a minor one. With the third wave now having peaked, measures are gradually being relaxed. Economic recovery has therefore resumed. Following the sharp contraction in gross domestic product (GDP) by 3.7% in 2020, GDP is expected to grow by 3.0% in 2021, 3.7% in 2022 and 1.9% in 2023. We expect GDP to top its pre-andemic level in the fourth quarter of 2021. This means projected recovery should be much swifter than that after the financial crisis.

Once support measures are scaled back after the third quarter of 2021, employment will initially decline slightly, only to pick up significantly over the course of 2022. At the same time, labour supply will temporarily show additional expansion, as job search opportunities improve. As a result, unemployment will grow from 3.6% on average in 2021 to 4.5% in 2022. As the economy recovers further, however, unemployment should fall back to 4.1% in 2023. On the back of higher oil prices HICP inflation is projected to go up from 1.1% in 2020 to 1.5% in 2021. In 2022 it should remain at 1.5% and rise to 1.8% in 2023, in line with increased labour market tightness. Public finances will still be strongly affected by the pandemic in 2021, with a deficit
of 4.1% of GDP and a debt-to-GDP ratio rising to 56.4%. In 2022 and 2023, when our projections assume the pandemic will be under control, the deficit should shrink to about 0.5% of GDP in both years, as the debt-to-GDP quote falls to 52.2% in 2023.

Information from the Ministry of Finance’s Spring Memorandum became available after we had finalised our projections, and we have therefore not included it in the figures. The Spring Memorandum shows a significant increase in the budget deficit in 2021 due to higher-than-expected expenditures and a less favourable underlying macroeconomic situation.

Given the greater-than-usual uncertainty surrounding our projections, this report again includes two pandemic scenarios. In the mild scenario, annual GDP growth in 2021-2023 ends up 0.4 percentage point higher on average, compared with the central projection. In the severe scenario, annual GDP growth will on average end up 1.1 percentage points per year below the central projection. Rather than defining the upper and lower limits to possible outcomes, the scenarios show that the bandwidth of possible outcomes has narrowed compared with that of six months ago