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Netherlands: Still in recession

Economic Update

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While the euro area as a whole moved out of recession, the Dutch economy contracted by 0.2% in Q2. The decline in output was smaller than in the previous quarters. Net trade contributed positively to economic growth, but could not offset falling private and government expenditure (chart 1). Exports of goods and services grew by 0.4%, a small improvement compared to Q1 (+0.1%). Meanwhile, imports grew by a mere 0.1%, after having fallen by -2.5% in Q1. Overall, the contribution of net trade to GDP growth was rather weak. 

Manufacturing still weak, but confidence improving

Manufacturing production fell 0.1% m-o-m in June. Following small upward revisions to the previous two months, manufacturing output grew by a modest 0.1% q-o-q, following a 1.7% decline in Q1.  On the bright side, both manufacturing PMI and the CBS producer confidence have been on the rise since April and May, respectively, and are moving from a pessimistic towards a ‘neutral’ stance. The manufacturing PMI rose to  53.5 and the CBS producer confidence rose to -1.6 in August. Looking ahead, we expect export growth to pick up as business sentiment improves in Germany, UK, US and France – the most important trading partners of the Netherlands (chart 2). The positive contribution of net trade should gradually lift the Dutch economy out of recession.

Chart 1: GDP & expenditure components
Chart 1: GDP & expenditure componentsSource: Statistics Netherlands
Chart 2: PMI Manufacturing, 3-month average
Chart 2: PMI Manufacturing, 3-month averageSource: Reuters Ecowin

Consumption, unemployment and inflation

Household consumption more or less stagnated over the past months, falling 0.1% m-o-m in June, after a 0.1% increase in May. Due to a sharp 1.4% m-o-m fall in April, the quarterly outturn for Q2 as a whole was negative (0.6% q-o-q contraction, chart 3). Consumption dynamics have been impacted by higher gas consumption in Q1, due to unseasonably cold weather. This resulted in a relatively modest decline of consumer spending in that quarter. The normalization of gas consumption in Q2 has pushed spending down in this quarter. The underlying trend in household consumption is downward and we expect this trend to continue during the remainder of this year and next. Note that real household disposable incomes continue to decline amid declining real wages, rising unemployment and fiscal austerity measures.

Inflation remains high, reaching 3.1% y-o-y in July before coming down to 2.8% y-o-y in August (chart 4). The peak in July was mainly due to an increase in housing costs, as a result of the yearly rent increase in July. In the past, the maximum rent increase was based on the inflation rate of the preceding year. As of 2013, the maximum increase is larger, as an income-dependent premium (up to 4% for the highest incomes) is now added on top of the inflation-based increase. The drop in August was mainly due to decreasing fuel costs: the price of a liter of petrol was almost 2 cents lower compared to the same month last year. Other spending categories that contributed to the drop in inflation were clothing and holiday package trips. While inflation is still being elevated by the VAT hike of last October and further indirect tax hikes in January, the pace of price increases will fall back sharply in the last quarter of this year. Inflation will probably fall further next January.

The unemployment rate rose from 6.8% in June to 7% in July, according to the international ILO definition. We expect unemployment to rise further in 2013 and 2014. 

Chart 3: Household consumption
Chart 3: Household consumptionBron: Statistics Netherlands, own seasonal correction
Chart 4: Consumer Price Index
Chart 4: Consumer Price IndexBron: Statistics Netherlands

Housing market stabilizing?

House prices rose 1.2% m-o-m in July, according to the Statistics Netherlands’ price indicator of existing homes. The number of transactions increased by 13.2% m-o-m (seasonally adjusted). These positive figures could signal the end of a downward trend in the housing market. The coming months will show if the housing market is indeed stabilizing. We currently expect stabilization in terms of the number of transactions in the second half of 2013.

Chart 5: House prices & transactions
Chart 5: House prices & transactions Source: Statistics Netherlands, Rabobank
Table 1: Dutch economy at a glance
Table 1: Dutch economy at a glanceSource: Statistics Netherlands, Rabobank
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