Brainport top region! Economic recovery differs strongly between Dutch regions

The Dutch economy will still be hindered by the strict lockdown, especially in the first quarter of 2021, but will recover quickly thereafter. In doing so, we assume that the cabinet will implement easing measures from the second quarter and that all measures will have been released at the beginning of the fourth quarter. The economy is expected to grow by 2.1 percent this year. This will bring it back to the level it was at the end of 2019 at the end of this year. We do see large differences between sectors. The strongest growers this year are the hospitality industry, followed by healthcare, the transport sector, industry and the information and communication sector. We foresee limited growth for education and the agricultural sector and production in construction will fall this year due to the continuing nitrogen problem. Together with specific regional characteristics, these sector expectations provide divergent recovery paths for the 40 Dutch regions.

Greater Amsterdam and Brainport Eindhoven are leaders of the economy

The economy will grow in every region this year. The only exception to this is Overig Groningen. Here, the decline in gas extraction is negating the growth in the other sectors. However, if we disregard gas extraction, the region can expect growth of around the national average. So here too we can speak of recovery.

Greater Amsterdam has a very favorable business climate and this largely explained the far above average growth in the years before the pandemic. The region will most likely reap the benefits in the near future. On the other hand, Greater Amsterdam is relatively affected by the current lockdown, which is slowing down the recovery. We see this reflected in the transaction data. On balance, however, we expect regional growth to be higher than average for the year as a whole. Southeast Brabant (Brainport Eindhoven) also benefited from favorable regional conditions in the years before the crisis and will probably do so again this year. In addition, the large share of industry in Southeast Brabant is favorable, because we expect above-average growth for that sector.

Four more regions stand out positively. South Limburg, Southwest Friesland and Southwest Overijssel are all three regions with a lot of industry that are benefiting from the recovery in this sector. In the Gooi and Vecht region, it has become apparent in recent months that the effects of the lockdown are relatively better than expected.

Lower growth in the north and on the coast

Regions with a lower forecast include IJmond and Delfzijl and the surrounding area. These are typical industrial areas and therefore have a favorable economic structure. That contributes to the growth forecast. However, due to a less favorable business climate, they did not live up to that expectation in recent years. If we take that into account, that limits the forecast in those areas considerably. This also applies to the other regions with a low prognosis: Leiden and Bollenstreek, North Friesland, Zaanstreek, Southeast South Holland and Southwest Drenthe. Growth there is generally lower than you would expect on the basis of the economic structure.

Figure 1. Expected economic growth for 2021

Source: RaboResearch

What explains the regional growth differences?

Regional differences in economic growth have been large in recent decades. This is partly due to differences in the economic structure. Areas with large growth sectors had a better starting point for growth than areas with many companies in sectors that are shrinking or growing at a slower pace. This is called the sector effect. However, regional growth appears to depend even more on specific regional circumstances. Examples are the advantages that companies derive from the proximity of knowledge institutions, the quality of the working population, the favorable living environment and good accessibility. Conversely, if these matters are not in order, they can slow down the growth of the region. The effect of these regional conditions on the economy is the so-called region effect.

We take both effects into account in the regional forecasts. We calculate the sector effect on the basis of our sector forecasts and the economic structure of regions. We estimate the regional effect on the basis of the realized economic growth figures between 2014 and 2018. We assume that regions with a favorable regional effect in that period will recover more quickly this year. After all, they have favorable regional conditions for growth. Finally, we use transaction data as an indication for the development of the recent economic activity of sectors in a region. One region is more affected by the current lockdown than the other. It is also important to mention that within a sector, differences between subsectors can be hidden. This concerns specific branches or large companies with a particular specialty. We do not specifically take this into account in our forecasts. However, these effects are largely in the regional effect.