Coronavirus impact: Recession in the Netherlands inevitable
Coronavirus is shaking up the country in more ways than one. According to the Netherlands Bureau for Economic Policy Analysis (CPB), a recession is inevitable, it just depends on how deep said recession will be and how long it will last.
Four recession scenarios
Right now, there are four scenarios for the development of the economy in 2020. Each scenario involves a recession, but in three of the four, the shrink will be worse than it was in the credit crisis 12 years ago. In the best-case scenario, the restrictions in place to prevent the spread of coronavirus will be in place for three months, the economy will shrink by 1,2 percent and then rebound in the third quarter after a short but substantial dip. In this scenario, the unemployment rate increases slightly to four percent- it’s currently at 3,4 percent.
In the worst-case scenario, restrictions will be in place for 12 months and GDP will decrease by 7,7 percent in 2020 and by another 2,7 percent in 2021. In this case, the economy will only recover a year later and additional problems will arise in the financial sector and abroad. Moreover, in this scenario, unemployment is predicted to peak at 9,4 percent in 2021.
CPB director Pieter Hasekamp explains that “government policy is aimed at limiting layoffs and bankruptcies. That prevents a downwards spiral and lasting economic damage.” “Nevertheless, the government can only cushion part of the blow at best. The longer the crisis continues, the greater the economic damage will be.” It should also be noted that these are simply predictions and that the reality could be better or worse.
A health crisis first and foremost
Hasekamp iterates that, “coronavirus is first and foremost a health crisis”. He emphasises that the measures being taken are necessary but that it is clear that these have a big effect on the economy.
At this point in time, much is uncertain about the effect coronavirus will have on the Dutch economy, as it is unclear as to how long the current measures will be in place. Additionally, such far-reaching measures have never before been used, which makes it harder to predict the effect they will have.