Very Weak Start to Second Quarter Signals Possible Technical Recession in the Netherlands

Very weak start to the second quarter is likely to result in a technical recession

All else being equal, the revisions would have boosted the Netherlands' annual GDP growth forecast for 2023. However, we revise it slightly downwards to 0.3% quarter-on- quarter due to the very weak data that we observe for the start of the second quarter. The hard (seasonally adjusted) data for April and May on a month-on-month basis was especially disappointing:

• Construction production contracted by -5.3% MoM in April.

• Manufacturing production contracted by -3.9% MoM in April, while rising only 1.9% in

  May.

• Retail sales excluding motor vehicles (Eurostat definition) stagnated at 0.1% MoM both in April and May, while retail sales also excluding gas stations and pharmacies (Statistics Netherlands definition) contracted by -0.1% MoM in April and -1.4% in May.

• Gross capital formation on fixed assets contracted -2.9% MoM in April.

• Goods imports rose 7.2% MoM in April (to some degree due to the propping up of gas

  storage).

• Goods exports contracted -0.5% MoM in April.

• Domestic consumption stagnated at 0.0% MoM in April and expanded by 1.0% in May, being a positive outlier so far.

• Prices of existing homes fell -1.0% MoM in April and -0.6% in May.

  At the same time, sentiment data worsened in April, May and June. Also, we expect the inventory reduction cycle to continue in the second quarter, albeit at a lower rate than in the first quarter, since firms still consider their inventory levels as too high. All in all, our second quarter GDP forecast is a contraction of -0.5% QoQ. This implies a technical recession in the first half of 2023.