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Higher growth in Dutch economy

Economic Update

  • Dutch economy grows by ¾% in 2014
  • Growth in second quarter mostly due to temporary factors
  • Consumption increases despite declining confidence
  • Strong labour market recovery in last few months

According to CBS Statistics Netherlands’ second estimate, the Dutch economy grew by 0.7% in the second quarter of 2014 compared to the previous quarter. The previous estimate put this figure at 0.5%. This positive adjustment of GDP growth is the result of higher consumption growth and smaller decline in government investment than previously forecast. Over 2014 as a whole we expect a GDP growth of ¾% compared to the previous year, primarily driven by exports.

In the coming months we expect a moderate further increase in manufacturing production. Consumption will increase further in 2015, with a projected y-o-y growth of 1%. As the recovery in private employment is developing faster than expected, we have adjusted our unemployment forecast for 2014 and 2015 downward by a quarter of a percentage point to 6¾ and 6½.

Second quarter growth mostly due to temporary factors

The second quarter’s relatively high growth was mostly the result of the normalisation of gas production compared to the first quarter. The relatively warm weather Western Europe experienced during the first months of the year meant the export and consumption of gas in the first quarter was low. The normalisation of gas production in subsequent months thus led to relatively strong growth in export and consumption over the second quarter (Figure 1).

The export of goods increased by 0.6% m-o-m in July (own seasonal correction), which is a good start to the third quarter. Partially as a result, June saw an increased momentum (the mutation of the three-month average compared to the previous three months) of 1.4%, compared to 1.1% in June. Production in the manufacturing industry also increased in July, by 1.9% m-o-m. Momentum remained negative, as July’s growth was preceded by two months of negative growth. The Purchasing Managers Index (PMI) rose to 52.2 compared to 51.7 in August. Nonetheless, the PMI is currently considerably below the level it registered at the start of the year (Figure 2), partially due to the increased geopolitical tensions of late. The index is still above the limit of 50, however, which roughly indicates the difference between positive and negative growth.

Figure 1: Greater GDP growth in second quarter
Figure 1: Greater GDP growth in second quarterSource: CBS Statistics Netherlands
Figure 2: Increased production in manufacturing industry
Figure 2: Increased production in manufacturing industrySource: CBS Statistics Netherlands, Bloomberg

Consumption grows despite falling confidence

In July, household consumption increased by 0.4% m-o-m. Momentum remained constant at 0.7% (Figure 3). Looking ahead, in September consumer confidence fell for the second consecutive month, from -6 to -7. Over the past few months, the confidence index showed a relatively strong decline (Figure 4), most likely as a result of the increased geopolitical tensions. The more negative views on the economic climate, which measures perceptions of the economic situation in general, especially contributed to the decrease in confidence. On the other hand, willingness to buy, which measures households’ views on their own financial situation, barely fell. In fact, there was an increase in the percentage of people who considered this a good moment to make big purchases (a sub-indicator of willingness to buy).

In contrast to overall consumer confidence, both August and September registered an improvement in expectations of the housing market: the Home Owners Market Indicator of the Dutch Home Owners Association even rose to 100 in September, the highest level reached since measurements began in 2004 (Figure 4). In addition to the relatively good level of consumer confidence and the increase in real disposable household income, the growing house sales total for next year will probably drive up consumption due to increased spending on home decoration.

Figure 3: Rising consumption
Figure 3: Rising consumptionSource: CBS Statistics Netherlands
Figure 4: Rising confidence in housing market
Figure 4: Rising confidence in housing marketSource: CBS Statistics Netherlands, OTB (Delft University of Technology)

Strong recovery of the labour market over past months

The situation on the labour market has improved over the past few months. Unemployment fell from July’s level of 6.7% to 6.6% in August (Eurostat/ILO definition) (Figure 5). After falling at the start of the year, employment levels have since shown strong growth: since March, the workforce has increased by 64,000 persons.

Labour market indicators show a further recovery is taking place in private employment. The number of job vacancies has been rising for four consecutive quarters and the number of hours worked in temp jobs has seen five consecutive quarters of growth. The increase in private employment this year will probably still be insufficient to offset the decline in the number of public sector jobs (especially in healthcare); therefore employment for the year as a whole is still falling compared to 2013. Overall employment will however show growth over the next year on an annual basis as a result of the economic recovery (see Limited job growth in 2015 (in Dutch)).

Figure 5: Falling unemployment
Figure 5: Falling unemploymentSource: CBS Statistics Netherlands
Table 1: The Netherlands core data
Table 1: The Netherlands core dataSource: CBS Statistics Netherlands; Rabobank
Martijn Badir
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO
+31 88 726 7864

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