The Dutch economy unexpectedly contracted by 0.1% in the first quarter of 2024. The contraction was mainly driven by a decrease in goods exports and further depletion of inventories. However, household spending and government consumption have increased. Investments also grew during this quarter. The tension in the labour market has slightly eased but remains high from a historical perspective. 
Jan-Paul van de Kerke (Senior Economist Netherlands and eurozone) and Aggie van Huisseling (Economist Netherlands) from ABN Amro explain the slight contraction in this article.
The Dutch economy unexpectedly contracted in the first quarter of 2024. The gross domestic product (GDP) shrank by 0.1% quarter-on-quarter (q-o-q). In 2023, we witnessed three consecutive quarters of contraction, followed by growth at the end of the year. The contraction of the Dutch GDP contrasts with the figures from neighbouring countries. For instance, the German economy grew by 0.2% q-o-q, and the eurozone by 0.3% in the first quarter of 2024.
The contraction in the first quarter was driven by a decrease in the export of goods and the depletion of inventories. The international context in which the Netherlands operates is still weakened, but we see that global trade is picking up again. The growth in the eurozone also surprised on the upside in the first quarter. The effect on Dutch exports is thus expected to take a bit longer to materialise. The contraction in goods exports (-1.3% q-o-q) is related to the weak situation of the Dutch industry; on the other hand, the export of services grew (+4.7% q-o-q). The figures show that the contraction in goods exports mainly stems from the industry. Globally, we see that the industrial sector's difficult times are bottoming out, which will also be positive for the Netherlands. This was also evident from the April figures, showing that industrial companies in April 2024 reported improved business conditions for the first time since August 2022. The significant reduction in inventories in the first quarter of 2024 also contributed negatively to the growth figure. The cycle of inventory reduction seems to be reaching its end, aligning with the bottoming out of the industry. The statistical error term also contributed negatively to the quarterly figure. The second calculation will reveal where this difference falls.
On the other hand, the domestic subcomponents increased. Household spending rose by 0.7% q-o-q. They benefit from purchasing power recovery due to falling inflation and strong wage growth. In the last quarter of 2023, consumption increased by 2.0%. It was expected that consumption in the first quarter would not grow as strongly, given that the spending effect of the energy allowance falls away, which had contributed to strong growth at the end of last year. Government consumption also increased, by 0.6% q-o-q. Despite the formation, the government continues to contribute to growth through spending on healthcare, education, and defence, but also through the wages of civil servants. Finally, investments surprised on the upside, with growth of 0.4% q-o-q. Despite the weaker macroeconomic context and high interest rates, more was invested in transportation and machinery. We believe these are mainly replacement investments. For other sectors, such as construction, the volume of investments actually decreased.
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The labour market has become slightly less tight, but the tension with 1.1 vacancies per unemployed person is still high. In the first quarter, we saw an increase in the number of hours worked per person and a slight increase in the number of open vacancies. We also see that more people from outside the labour force are looking for work, but fewer people found a job directly. The figures published this morning align with our view of the labour market: the tightness is persistent but diminishing in intensity. This is also signalled by business surveys, where companies indicate that labour shortages are becoming relatively less pressing. However, shortages of adequately skilled personnel remain the biggest obstacle for employers.
Despite the downward surprise, the published figures support our view of the growth prospects for 2024. We expect low, but positive growth for the rest of the year, with the main driver being domestic demand from both the government and households. Exports will – given the bottoming out of global trade and the industry – mainly recover in the second half of 2024.