COVID-19: The impact on various sectors of the Dutch economy

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Earlier this year, the editors of Faces Online have published a reconstruction of the events surrounding the coronavirus. The lockdown measures are slowly relaxing, but the consequences of the corona crisis will be felt in society for a long time to come. The CPB and the DNB predicted at the beginning of June that a deep recession is inevitable. The economy is expected to shrink by 6.4 percent this year, twice as much as the credit crisis in 2009 and a historical low. 

It is clear that the current 1.5 meters society is affecting the catering sector, but what about the other business sectors? In this article we analyse the Accountancy and Financial sector, among others, and also reflect on the status of large Dutch companies.

“An important difference with the previous major crisis is that the origin is now outside the financial sector and the financial buffers at banks are considerably higher than they were during the previous crisis.”

The Financial sector (banks and pension funds)

The banking sector is at the heart of this crisis as an aid provider for all sectors. With bridging loans and deferral of redemption and interest it is trying to help companies and consumers overcome the corona crisis. An important difference with the previous major crisis is that the origin is now outside the financial sector and the financial buffers at banks are considerably higher than they were during the previous crisis. This does not alter the fact that banks are becoming more cautious when issuing loans. Therefore, the acceptance criteria have been tightened in the second quarter. The purpose of the stricter criteria is to protect banking institutions against bad loans, which are at the expense of profitability. Though, the profitability was already under pressure due to low interest rates. The Dutch Central Bank does not expect the banking sector itself to run into problems in the moderate scenario. Only in the severe scenario, banks will be hit by a sharp recession, but they will still be able to fulfill their role as financial intermediaries. 

The pension funds have also been severely affected by the corona crisis. The decrease in the value of their investments have caused pension funds’ already vulnerable capital position to deteriorate further in the recent months. The policy coverage ratio, the yardstick for the current financial position of pension funds based on the average coverage ratio of the past twelve months, fell to 98 percent. This means that it is below the temporary statutory minimum of 100 percent. As a result, pension funds do not have sufficient assets to meet the mandatory benefits they have agreed on with its members. This can be remedied by either increasing contributions or reducing pension benefits.  Fortunately, it seems unlikely to get this far, as a new pension agreement is about to be signed. In this pension agreement, the coverage ratio and actuarial interest will disappear. As a result, there will no longer be any promises for future benefits, which means that there will no longer be any shortfalls. 

Large Dutch companies 

The coronavirus also has a major impact on multinationals on Dutch soil. An example of this is the oil giant Shell. The combination of plummeting oil prices and the reduction in fuel consumption due to the coronavirus led to a drop in turnover of no less than 28% in the first quarter. That same quarter, Shell’s profits halved, forcing the company to reduce its dividend spending, for the first time since the Second World War(!). The decline in dividend spending is a bad sign for Shell, as liquidity was still reasonably good. It therefore deliberately reflects a rather negative picture for Shell’s future.

A homegrown multinational where the corona crisis seemed to have a positive impact on is Unilever. Unilever has the ideal product portfolio, with sales of food, personal care and cleaning products. Due to the massive hoarding in the first weeks of the crisis, you would have expected the laundry and food group to have made a good start. However, this turned out to not be the case, as the sales figures for quarter 1 were roughly the same as in the previous year. The underlying reason for this is the fact that Unilever saw a decline in turnover as sales to catering suppliers stagnated. It is the sales to these consumers where they gain their highest margin. 

Lastly,  a big player among the Dutch multinationals is the chip machine manufacturer, namely ASML. The corona virus had a major impact on the financial figures that the company had reported. The turnover in Q1 decreased by roughly 1.6 billion compared to the previous quarter in 2019. This was mainly due to the postponement of deliveries of the chip machines. Fears that transport would no longer be possible later also played a role for customers.

The Accountancy sector

The Accountancy sector appears to be one of the sectors that is quite capable of coping with the impact of COVID-19. Nevertheless, some of the largest accounting firms have prepared to withhold partner payments in an effort to mitigate the financial impact of the coronavirus pandemic. It is only one measure envisaged among the ‘Big Four’ accounting firms – KPMG, Deloitte, PwC and EY – and medium-sized firms BDO and Mazars, to withhold cash if clients’ fees decline. Top Accountancy firms are also looking into the possibilities of a temporary postponement of rules and legislation. These include the mandatory rotation of accountancy firms, counting physical stocks and filing accounts. Here, they argue that the coronavirus outbreak has created ‘unprecedented challenges’ for the accounting firms. However, it appears to be that most firms are healthier in terms of liquidity compared to previous years and decades, mainly due to some major divestments and cash savings. Finally, this sector seems to be more likely to be affected in the long term by the major pandemic developments since the beginning of 2020. This means that the effects are currently only sporadically visible.

“The loss of customers and orders, cash flow shortages and ICT problems are mentioned most often.”

Dutch SMEs

Since the COVID-19 outbreak, small and medium-sized enterprises (SMEs) have been widely reported on in the news, given the relatively large impact that is being experienced by them. For example, MKB-Nederland (SME-Netherlands) conducted a worldwide survey on Corona’s impact on Dutch companies. They have shown that two-thirds of the companies that were surveyed are predicting a (very) large impact on their future financial results.. The loss of customers and orders, cash flow shortages and ICT problems are mentioned most often. In response, the Dutch government came up with extensive support packages to help Dutch companies and self-employed people through the corona crisis. The aim is to help entrepreneurs who sometimes see up to 100 percent of their turnover disappear. In addition to this, the goal is to keep as many jobs as possible. A much-discussed, and sometimes criticized, measure is the dismissal fine, which means that the subsidy received (plus a fine) must be repaid as soon as an employer dismisses twenty or more people without consulting the trade unions or work councils. Although the number of bankruptcies increased on average in April, figures from Statistics Netherlands show that there were fewer companies, 73 less than in April, who have declared bankruptcy in May. For the time being, the very large impact on the financial results of Dutch SMEs does not yet translate into a clear negative trend.