Dutch construction faces a turbulent winter as cases spike in the country

23 October 2020 (Last Updated October 23rd, 2020 10:02)

Dutch construction faces a turbulent winter as cases spike in the country

Although still recording a sharp downturn amid the Covid-19 outbreak, the Dutch economy performed relatively well in the first half of the year compared to its European peers. The Dutch economy contracted by 1.5% year on year in the first quarter and 9.5% in the second quarter of 2020. In contrast, neighbouring Belgium, which opted for stricter lockdown measures, saw a 14.5% contraction in GDP.

However, in the past month cases have dramatically spiked in the Netherlands, which has now become one of the worst affected countries in the region. The Dutch Government has begun taking precautionary measures, in early October, the government announced that it would impose a partial lockdown across the country. The measures include the mandating of face masks in public and the temporary closure of all bars and restaurants. The new partial lockdown measures are likely to subdue economic activity; the government has said stricter measures will be imposed if the infection rate continues to rise.

The Dutch construction has also performed relatively well compared to others in the region, such as Belgium, as well as France, the UK and Italy. The Dutch statistics office reported that in October, the Dutch construction sector shrank by 3.5% year on year. In contrast, the Belgian construction shrank by 16% during the same period. The divergence between the two sectors can be explained by the fact construction sites in the Netherlands could stay open with no restrictions, while social distancing and other restrictions were imposed on the Belgian construction sector. This was a similar theme across most sectors in the Dutch economy, which partly explains the strong performance by the Dutch economy in the first half of the year.

However, the sector faces significant risks this winter. If cases continue to rise, the government may have to implement stricter rules for the construction sector, and this could substantially hit output growth. Brexit is also a key risk factor for the sector, the country’s third largest trading partner currently is the UK, in the event of a deal not being reached exporters would face trade barriers in the form of tariffs. A report by the credit insurance company Euler Hermes estimated that the Dutch economy could lose an estimated $5.8bn in the event of a no deal Brexit. Firms involved in exporting construction machinery and other electrical equipment face the biggest downside risk.

GlobalData expects the Dutch construction industry output to contract by 0.5% in real terms in 2020. However, further downward revisions to this forecast are likely if stricter containment measures are introduced by the government in the near term. During the remaining part of the forecast period (2020–2024), the industry is expected to post an annual average growth rate of 1.9% in real terms. The government’s investment to upgrade transport and energy infrastructure, as well as investment in the affordable housing program, is expected to support growth during the period of 2021–2024.