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The Netherlands: exports falter, private consumption recovers

Economic Update

  • Weak export performance in July and August
  • Positive sentiment among producers points to manufacturing growth
  • Improvement in consumer confidence and consumption
  • Recovery on housing market and labour market continues

After a quarter-on-quarter increase of 0.7% in real Gross Domestic Product (GDP), GDP growth in the third quarter of this year was dampened by weak development of exports. For 2014 as a whole, we assume GDP growth of ¾% (Table 1). Next year, growth will accelerate further, as a result of exports picking up and increased private consumption. That said, the conflict in Ukraine/Russia as well as the situation with IS in the Middle East constitute downward risk factors for this scenario.

Table 1: Key data, the Netherlands
Table 1: Key data, the NetherlandsSource: Statistics Netherlands, Rabobank

For the rest of the year we expect a moderate increase in manufacturing output. Furthermore we expect consumption to grow at a moderate pace, thanks to improved confidence and the increase in real disposable household income.

Faltering export engine

The relatively high GDP growth in the second quarter was chiefly caused by the normalisation of gas production vis à vis the previous quarter. Exports also benefited from this, increasing by 1.2% (seasonally adjusted) on the first quarter. In the third quarter, however, exports weakened considerably (Figure 1). The seasonally adjusted volume of the export of Dutch goods declined in both August and July in relation to the preceding months. This weakness was partly due to the conflict in Ukraine/Russia, and the fragile recovery of the Eurozone. Assuming this to be a temporary relapse, we expect exports recovered in the period after August, as the situation between the West and Russia in that period was more calm. As indicated earlier, we still consider this situation as a downward risk.

In line with the weak export scenario, the seasonally adjusted output in the manufacturing industry likewise declined in August, slipping by 0.6% month-on-month. Momentum (3m/3m change) has been weak in recent months. However, we see this as a temporary dip. Sentiment indicators point to growth in the manufacturing industry in the coming months. The Purchasing Managers Index (PMI) rose further from 52.2 in September to 53 in October, and producer confidence reached its highest level in October since May 2011 (Figure 2).

Figure 1: Recent decline in export growth
Figure 1: Recent decline in export growthSource: Statistics Netherlands, Rabobank
Figure 2: Marked increase in producer confidence
Figure 2: Marked increase in producer confidenceSource: Statistics Netherlands

Further recovery on the housing market and rising employment

The recovery on the housing market continued in the third quarter. Existing home sales increased further, although at a slower pace than in former quarters. On the other hand, the existing home prices index grew faster than in previous quarters (Figure 3). The recovery on the housing market has a positive effect on household spending on durable consumer goods as well as on home investments. Mirroring the housing market, developments on the labour market are also favourable. Unemployment dropped from 6.6% in August to 6.5% in September (Eurostat/ILO definition). While the drop in unemployment in the early months of the year was due to a decline in the labour supply, the more recent improvement can be attributed to increased employment (Figure 4).

Figure 3: Further recovery on the housing market
Figure 3: Further recovery on the housing marketSource: Statistics Netherlands, Dutch Land Registry; computation: Rabobank
Figure 4: Employment on the rise
Figure 4: Employment on the riseSource: Statistics Netherlands

Consumers back on track

Following the uninterrupted rise in consumer confidence since August 2013, consumer sentiment deteriorated in August and September. This decline was mainly due to a drop in the sub-indicator measuring consumers’ confidence in the general economy. The escalating tensions and trade sanctions resulting from the conflict between Ukraine and Russia, as well as the advance of IS in the Middle East were to blame for this. Nonetheless, willingness to spend remained on track in recent months. In October, consumer confidence showed an improvement (Figure 5). Accordingly, it seems the geopolitical developments of this summer caused a brief dip - for the time being.

In August, the seasonally adjusted volume of household consumption rose by 0.8% month-on-month. This followed a rise of 0.3% in July (Figure 6). The August increase was mainly driven by a rise in spending on durable consumer goods. In the second quarter, consumption growth figures had been flattered by the normalisation of gas consumption. In the third quarter these temporary effects no longer played a role but consumption growth nonetheless increased. This points to a clear underlying recovery.

Figure 5: Recovery in consumer confidence
Figure 5: Recovery in consumer confidenceSource: Statistics Netherlands
Figure 6: Private consumption picks up
Figure 6: Private consumption picks upSource: Statistics Netherlands, Rabobank
Björn Giesbergen
RaboResearch Global Economics & Markets Rabobank KEO
+31 88 726 7864

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