As a result of COVID-19 measures to combat the pandemic, the Netherlands has led to an exceptional decline in economic activities of around 10 to 15%. Netherlands Bureau for Economic Policy Analysis (CPB) published the June estimate of various scenarios yesterday. CPB's base estimate, which assumes a moderate recovery, results in a 6% GDP decline in 2020, followed by a 3% increase next year. Unemployment is doubling. Public finances are hit hard, but remain out of the danger zone.
If a second wave of contamination leads to renewed contact constraints, companies will face additional production problems and face further declining demand for their products and services, while buffers are already affected. In such a scenario, GDP will also shrink in 2021, unemployment will rise to 10% and government debt will increase to over 75% of GDP.
The pace of recovery may also be disappointing due to major economic problems among trading partners. In case of lagging economic recovery on an international level, banks may find themselves in trouble, both in the Netherlands and abroad. This would further dampen the recovery via credit provisioning. Under such a scenario of weak economic recovery, there would be no growth in GDP in 2021, with unemployment rising to more than 10% and public debt increasing to over 75% of GDP.
According to the CPB, it is also conceivable that the recovery will proceed more quickly if the lifting of contact restrictions leads to optimism among consumers. The rise in unemployment can remain limited by catching up on household spending and investment by companies to take advantage of new opportunities. In such a strong recovery scenario, GDP may return above the level of the end of 2019 in the course of 2021.
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NAZALI TAX & LEGAL |