Pieter Hasekamp, CPB Director: ‘The support package has softened the blow and prevented a domino effect in the economy, but an increase in bankruptcies and unemployment is inevitable when companies have to adapt to changing demand. This means that the effectiveness of the support policy will gradually decrease. It is, therefore, wise to carefully phase out the support package and focus more on adaptation and retraining.’

Development of the pandemic will decide the prospects of economic recovery. In order to do justice to this uncertainty, CPB also included a scenario with reimplementation of large-scale physical contact restrictions (i.e. ‘second-wave scenario’). Under such a scenario, the economy will shrink also in 2021 and unemployment will increase towards 10%.

In the baseline projections, the median static purchasing power will be slightly higher (+0.4%) in 2021 than in the provisional projections, as a result of additional reductions in the financial burden. These static purchasing power figures do not include the fact that lay-offs and turnover losses for the self-employed are causing significant income losses for large numbers of people and that the government has taken over part of the wage costs.

Public finances have been severely impacted, both by the support measures and lower tax revenues, but are not in jeopardy. Under the second-wave scenario, the debt ratio increases to 72% of GDP by the end of 2021, which is well below the European average and still below levels that are considered risky. Therefore, so far, there is no obvious reason for taking measures to reduce the deficit, not in the least because that could also further deepen the crisis.

Corona crisis hits weak spot

In the analysis in this MEV report, CPB draws attention to the effect of the corona crisis on inequality. On the labour market, the greatest impact is on vulnerable groups, including young people, the self-employed and migrants. Corona may also increase existing unequal opportunities in education and, thus, exacerbate income inequality in the long term. In the short term, government can support the groups that are most affected. The real challenge, however, is that of addressing the underlying vulnerabilities themselves, and relates to reducing the differences between permanent employment and flex work, combating ostensible self-employment and discrimination, reducing the differences in health levels and working conditions. Although this would come too late for the current crisis, it could ensure that society is more resilient by the time the next crisis hits.

Corona crisis dampens growth in productivity and labour supply

 Today, in addition to the MEV, CPB also published an update of the medium-term outlook (MLT, only published in Dutch). In the baseline projections, the economy will gradually recover from the corona-related recession. Because of the high degree of uncertainty, a deep recession scenario was also calculated in which corona leads to greater long-term economic consequences. This scenario is in line with the second-wave scenario in the MEV that includes reimplementation of physical contact restrictions.

The corona outbreak will lead to a lower GDP level by 2025 than was projected in March. The 2025 GDP volume has been revised 4% downwards in the baseline projections, compared to those of March; under the deep recession scenario, it is as much as 9%. By 2025, unemployment will have gradually decreased to 4.5% in the baseline projections, and to over 6% under the deep recession scenario. Purchasing power will not increase, over the 2022–2025 period. The government deficit decreases to 1.7% of GDP by 2025 in the baseline projections, but will still be over 3% under the deep recession scenario. The corona outbreak worsens the sustainability gap; according to the current estimate for the baseline projections, the sustainability gap is 3.0% of GDP.