Corona crisis results in largest drop in consumption ever measured
The Dutch economy shrank by 1.7% in the first quarter of 2020 in comparison with the previous quarter. According to Statistics Netherlands, it is the strongest decline since the financial crisis in 2009. In addition, the crisis resulted in the largest drop in consumption ever measured. Sandra Phlippen, Assistant Professor at Erasmus School of Economics and Chief Economist at ABN Amro, talks about the negative figures on the Dutch television programme NPO Op1.
Not entirely unexpected
Phlippen was particularly surprised by the sharp drop in consumption. However, it was not entirely unexpected. 'Consumption levels have been declining for some time now, especially in the hospitality industry. At ABN Amro we look at the number of debit card transactions at one point in time compared to the same point in time in the previous year. The data already showed a 70% loss in turnover for companies in the hospitality sector.'
The bright side is that the Netherlands is still doing reasonably well in comparison with other countries in the Eurozone such as Spain and Italy. In these countries the economy shrank by around 6% compared to the previous quarter. 'The fact that the Netherlands is still doing well compared to other countries is partly due to the intelligent lockdown, but also because the labour market was very tight before the crisis. In addition, The Netherlands has a very good online infrastructure. A lot of purchases that were no longer made in the shopping street took place online. Our country also has the advantage of having a real service economy. Many people can work from home, which has really worked to our advantage.'
The support of banks
But what can banks do to support the economy in these times? 'A whole lot fortunately,' says Phlippen. 'The first thing we did at ABN Amro was to give all our customers a 6 months' payment deferral. If a customer did not want to make use of this deferral they had to report it. We were able to help a lot of companies because of this. We also gave mortgage lenders a deferral.'
The government and the banks are currently facing the same dilemma. 'In a way, this is a temporary situation. We are slowly coming out of the lockdown and are on our way to the new normal. That new normal we're talking about, however, means for a lot of companies that there revenue model no longer works the way it did before the crisis. Ultimately, the question is whether the government will be able to overcome the entire period, up to the point where a vaccine is put on the market, by fully supporting the economy. The problem, however, is that if the government continues to support the economy, companies will keep operating in parts of the economy that are not productive. This makes the long-term economic recovery more difficult. This is a very tricky issue.'