Dutch economy appears to be larger but has been stagnating for longer than previously thought

The European Commission recommends that member states revise the national accounts at least every five years. Therefore, CBS recently implemented new sources and methods for calculating macroeconomic indicators for the period from 1995. This way, the picture of the Dutch economy is optimally aligned with all underlying statistics, sources, and international guidelines.

After the revision, the total size of the Dutch economy (expressed as GDP in current prices) last year was EUR 1068 billion, almost EUR 34 billion higher than the size calculated according to the old method (see figure 1). Because nominal government debt remained virtually unchanged after the revision, this means that government debt as a percentage of GDP fell by 1.4 percentage points to 45.1%. In addition, annual economic growth for 2019 to 2022 was higher than previously calculated, but growth in the first quarter of 2024 compared to the fourth quarter of 2023 was much lower.

The latest calculation of economic growth indicates the Dutch economy contracted by 0.5% in the first quarter. In the previous calculation that CBS published 45 days after the end of the quarter, the contraction was only 0.1%. Although this is not immediately clear from the publication of the quarterly figure, it is likely that this adjustment of 0.4 percentage points is largely due to the revision of GDP and not a regular adjustment.[1]

Several approaches can explain why the adjustment to quarterly growth over the first quarter of 2024 was so large. From the final expenditure approach (see table 1), one can see that export growth of both goods and services in the first quarter was much lower than initially estimated. If the import growth of services had not also been revised so strongly downward, the stronger export decline would have caused an even larger contraction of the economy in the first quarter.

[1] Usually, the adjustment of the growth figure results in a 0.1 percentage point difference between the figure published 45 days after the end of the quarter and the figure published 85 days after the end of the quarter. Both the median absolute adjustment and the average absolute adjustment of quarter-on-quarter growth between Q1 2008 and Q1 2024 result in a 0.1 percentage point difference between the flash estimate (at t+45) and the first regular estimate (at t+85). The average absolute deviation (a measure of spread) is also 0.1.

From the production approach (table 2), the 0.4 percentage point difference in economic growth in the first quarter cannot be attributed as clearly to one component. The lower added-value growth in all sectors together contributes to about a third of the contraction. This is mainly due to lower added-value growth in trade, transport, hotels and catering, in construction, and in government, education, and care. Two-thirds of the decline in GDP growth in the first quarter is due to an increase in (product-related) subsidies instead of the previously calculated decrease and to the disappearance of the positive contribution of the statistical residual (or the statistical difference).

Similar to the first quarter of 2024, other recent quarters had a substantial adjustment to their quarter-on-quarter growth (see figure 2). For example, the growth figure for the second quarter of 2022 is now 1.1 percentage points higher, and for the fourth quarter of 2022 it is 0.8 percentage points lower. Which component makes the largest contribution to the revised figure differs per quarter. One quarter it can be traced back to an adjustment of consumption, while for another quarter it’s an adjustment to investments or exports.

The adjustment of growth in recent quarters also significantly impacts our forecast for 2024. This is not only due to the revision in the first quarter of this year but also the adjustments in the 2023 quarters. Via so-called carry-over effects, these quarterly growth rates also impact the growth figure for 2024. If we do not change anything going forward, GDP growth this year will be 0.5 percentage points lower than in our latest Economic Quarterly Report: -0.1% instead of +0.4%. Except for business investments and imports, all expenditure components contribute to this downward revision, with household consumption and exports leading the way.

According to the old calculation method, the Dutch economy recovered strongly and quickly from the pandemic, rebounding faster than other European countries. That recovery now appears to have been even stronger. Figure 3 shows that, since the second quarter of 2022, GDP figures (adjusted for price developments) were consistently higher than the old method indicated. This means that, since Q4 2019 (the reference period used), growth has been higher than previously thought.

That’s the good news. Figure 3 also shows that, according to the new method, the size of the Dutch economy has been shrinking since mid-2022, whereas the downturn only started at the beginning of 2023 according to the old calculation. Therefore, we conclude that the economy has been muddling along for almost two years now.

It is striking that the labor market does not suffer from this downturn at the national level (see figure 4). The number of hours worked has continued to increase in recent years. Here too, one can see that growth according to the new calculation is higher, but it flattens out earlier than according to the old calculation, in line with GDP development.

Looking back further, one can see that annual GDP growth figures have only been minimally adjusted in most years (see figure 5). Exceptions are 2019 (0.3 percentage points higher after revision) and 2022 (0.7 percentage points higher after revision). For other years, the adjustment remains limited to a maximum of 0.2 percentage points. However, the adjustments are usually positive, which means that the Dutch economy over the entire available period (1995-2023) grew by 75%, not 72% (see figure 6). This extra growth is mainly due to household consumption, which has now been shown to have grown by 55% instead of by 49%. Exports have also grown much faster than previously thought. However, this applies to imports to an even greater extent, which means that net trade has grown less rapidly than according to the old calculation.