RaboResearch - Economic Research

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Consumer spending creates tailwind for Dutch economy

Economic Update

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In our forecast for the Dutch economy, we express our expectation of ½% contraction in consumer spending compared to last year. However, this expectation may yet be exceeded thanks to a recovery in the consumption of durable goods. While things are picking up on the domestic front, exports and the manufacturing industry disappointed in recent months. However, thanks to stronger economic growth in important trading partners such as Germany, the UK and the US, we expect that Dutch exports will pick up again later in the year.

Consumers loosening their purse strings

In May, household consumption increased by 0.2% m-o-m, after a rise of 0.7% in April. This indicates growth of private consumption in the second quarter. Part of this growth is caused by a recovery of gas consumption, after a decline in gas usage in the warm first quarter. A positive development is that consumption of durable goods is showing y-o-y growth since November last year (figure 1). Towards the end of 2013 this was largely due to temporary higher car sales, but since early this year it is mainly the other categories such as textiles and household goods and appliances that account for this growth.

In July, as in the two preceding months, consumer confidence registered -2. Although consumers remain largely pessimistic, the confidence index is above the long-term average of -7.3. The improvement in consumer confidence is driven by a stream of positive domestic news.

Unemployment eased to 6.8% in June, from 7% in May and 7.2% in April (Eurostat/ILO definition). Although the majority of consumers still expect unemployment to rise, the percentage of pessimists has fallen sharply in recent months (figure 2). On the housing market, sales have risen since mid-2013. In the second quarter of this year, 34,074 homes changed hands - 10% more than in the first quarter (our own seasonal adjustment). Moreover, prices are on an upward trend since the middle of last year. Adding to the good news is that government finances have improved markedly, which means that next year there will probably be no need for additional cutbacks.

Figure 1: More consumption of durable goods
Figure 1: More consumption of durable goodsSource: Statistics Netherlands
Figure 2: Less pessimism about unemployment
Figure 2: Less pessimism about unemploymentSource: Statistics Netherlands

Exports disappoint somewhat

Exports of goods declined by 1.4% in May, having fallen by 1.2% in April (our own seasonal adjustment). This indicates a contraction of exports in the second quarter. The manufacturing industry likewise disappointed. Manufacturing output declined by 2.9% in May, having increased by 2.4% in April. Momentum (3m/3m change) in May was -2.9% - the weakest performance since the spring of 2009, when the Dutch economy was in a deep recession (figure 3). Total industrial production, which also includes energy use and mineral extraction, rose in April and May due to higher gas production. The purchasing managers index (PMI) of the manufacturing industry registered 53.5 in July (figure 4). The fact that the PMI in the Netherlands and in important trading partners is above the neutral level of 50, points to a resumption of growth in manufacturing output in the coming months.

Figure 3: Weak momentum manufacturing industry
Figure 3: Weak momentum manufacturing industrySource: Statistics Netherlands
Figure 4: Positive sentiments in manufacturing sector
Figure 4: Positive sentiments in manufacturing sectorSource: Reuters EcoWin

Outlook for the Dutch economy

In the first quarter of this year real GDP contracted by 0.6% q-o-q owing to temporary effects in car sales and gas consumption. That said, there are underlying signs of economic recovery. For the rest of this year we expect to see modest economic growth. In the second quarter, growth will probably come from private consumption. However, throughout the year, exports are expected to also return to making a positive growth contribution. On a positive note, rising consumption means that the economy is becoming less dependent on other countries.

Table 1: Key figures The Netherlands
Table 1: Key figures The NetherlandsSource: Statistics Netherlands, Rabobank
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