RaboResearch - Economic Research

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Ingredients for further recovery Dutch economy in place

Economic Update

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  • Higher than expected export growth third quarter
  • Positive producer confidence points to manufacturing growth
  • Declining consumption growth third quarter
  • Higher consumption growth expected due to further recovery housing market and labour market

Dutch real GDP growth amounted to 0.2% q-o-q in the third quarter - considerably lower than the 0.6% growth achieved in the second quarter. Corporate investment rose in the third quarter, as did exports. Household consumption grew only slightly.

After the slide in growth of the third quarter, many ingredients are in place for higher growth of real GDP in the quarters ahead. For instance, sentiment about the Dutch economy has improved considerably over the past months (Figure 1). Thanks to the improved consumer confidence and income growth, private consumption is set to contribute more to economic growth. The outlook for exports is likewise positive, but stays uncertain due to the conflict in Ukraine/Russia and the tensions in the Middle East. For this year, we assume GDP growth of ¾%. In 2015, economic growth will rise further, driven by higher export growth and increased private consumption.

Table 1: Key data The Netherlands
Table 1: Key data The NetherlandsSource: Statistics Netherlands, Rabobank
Figure 1: Sentiment considerably improved
Figure 1: Sentiment considerably improvedSource: Macrobond

Higher export growth expected

The seasonally adjusted volume of exports increased by 1.2% in the third quarter, compared to the previous quarter. This growth was higher than expected, because the numbers for the seasonally adjusted volume of exports in July and August had been weakened by the unrest in Ukraine/Russia and the fragile recovery of the eurozone. This dip was followed by a m-o-m rise of as much as 2.7% in September, putting an end to fears for a sharp drop in exports in the third quarter. Although a downward risk remains on account of the prevailing tensions between the West and Russia and the situation in the Middle East, we expect export growth to continue in the coming quarters. The impetus will receive a boost from a depreciation of the euro vis á vis the dollar (Figure 2).

Seasonally adjusted manufacturing output rose by 1.1% in September, having declined by 0.8% in August. Momentum (3m/3m change) was also weak in recent months. However, we expect production volume to recover in the months ahead. Producer confidence currently stands at 2.4 points which is the highest level since May 2011 (Figure 3). And the sub indicator measuring sentiment about expected output showed a marked improvement in the past two months. Moreover, sentiment indicators in important trading partners such as the US and the UK point to higher growth in the coming months.

Figure 2: Euro losing ground to US dollar and Sterling
Figure 2: Euro losing ground to US dollar and SterlingSource: Statistics Netherlands, Rabobank
Figure 3: Producer confidence higher
Figure 3: Producer confidence higherSource: Statistics Netherlands

Recovery in consumption remains volatile

Consumer confidence has experienced some ups and downs in recent months. In August and September, the index deteriorated as a result of rising international tensions. After a temporary recovery in October, the indicator dipped again in November. The deterioration in November can be explained by a drop in stock market rates in mid-October. The volatility is chiefly reflected in the sub indicator that measures consumer sentiment regarding the economic climate. By contrast, spending willingness remained fairly stable throughout the period.

Household consumption rose by only 0.1% q-o-q in the third quarter, having grown by 0.4% in the second quarter. The lower growth rate can be partly attributed to the fact that consumption growth in the second quarter was flattered by the normalisation of gas consumption. At the same time, we have to conclude that the underlying recovery in consumption is fraught with difficulty. Consumption of durable goods dipped sharply in September (Figure 4). According to Statistics Netherlands (CBS), this is mainly because consumers spent less on clothes and shoes, although they spent more on home furnishings and electronic goods. This is in line with the recovery on the housing market (Figure 5). Consumer confidence in the housing market is currently at a historic high. Accordingly, we expect to see a slight further increase in the number of purchases in the coming quarters. Other factors likewise point to an improved domestic dynamic: unemployment is falling and the government will not need to implement additional cuts next year. Therefore we expect that the influence of these positive factors will lead to a modest increase in household consumption in the coming quarters.

Figure 4: Lower consumption of durables
Figure 4: Lower consumption of durablesSource: Statistics Netherlands
Figure 5: House sales picking up
Figure 5: House sales picking upSource: Statistics Netherlands, VEH
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