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The Netherlands: fragile recovery in the Dutch economy

Economic Quarterly Report

  • The Dutch economy is growing moderately in 2014 and will accelerate slightly in 2015
  • Private consumption is recovering in the second half of this year and in 2015
  • The labour market is showing signs of recovery
  • Geopolitical tensions are a downside risk for the economic recovery

Prospects for the Dutch Economy, by Tim Legierse

Following the increase of the economy over the past four quarters, we expect a mild further increase in economic activity, driven mainly by exports and investment. GDP volume is expected to increase by ½% in 2014 compared to last year. Household consumption will make a positive contribution in 2015, and we expect to see GDP growth of 1½%. As a result of the increase in private consumption, the recovery will also be felt next year in domestically oriented sectors such as retail, hospitality and personal services. Employment will pick up further, meaning that unemployment will fall slightly next year as well. Unemployment is still high in 2014. Geopolitical tensions form a downside risk to exports and confidence, and thus to the still fragile recovery in the Dutch economy.

Export volume is expected to rise by 3% this year compared to the previous year. Export growth in 2015 will rise to 5½%, driven by faster global growth. Based on the improved economic outlook for our major trading partners, we expect businesses to increase their investments in the next few years. Gross private investment in property, plant and equipment is expected to increase by 1¾% in real terms this year, and by 5% next year.

After years of decline, real disposable household income is rising slowly again in 2014 as a result of low inflation and government policy. Deleveraging by households, in other words the paying down of debt and building up capital, will put a brake on consumption growth this year. On balance, we expect private consumption to increase slightly in the second half of this year. In 2014 as a whole however, there will still be a contraction in consumer spending of ¼% compared to last year. Real disposable income will rise further next year, mainly due to a higher level of employment. We thus expect consumption to rise by 1% next year, after three consecutive years of decline.

The Dutch government’s austerity policy is beginning to bear fruit and reduce the deficit. The government deficit this year is expected to amount to 2¾% of GDP.

Unemployment will remain high this year at 7% on balance (Eurostat/ILO definition). Jobs still have to go in the public sector due to the cuts, especially in health care. Total employment will in our estimation rise again in 2015 on the back of employment in the private sector. Unemployment will fall slightly next year to 6¾%.

Table 1: Key data for the Netherlands
Table 1: Key data for the NetherlandsSource: Statistics Netherlands (CBS), Rabobank

Second quarter not as strong as it appears

Real GDP was up 0.5% in the second quarter compared to the first quarter. This was mainly due to temporary factors (figure 1). On the consumption side, higher exports and private consumption and lower imports contributed to growth (figure 1). The rise in exports and private consumption was mainly due to a normalisation of gas production after a relatively warm first quarter. Underlying this, the development of consumption and exports was relatively weak in the second quarter, and therefore the GDP growth of 0.5% gives a rather rosy picture of reality.

Over the past year, Dutch Gross Domestic Product (GDP) has shown average quarterly growth of 0.2% in real terms. This growth was almost entirely due to exports, driven by a pick-up in global economic growth. Private investment also increased on average over the year, as export businesses experienced higher capacity utilisation and due to the recovery in the housing market. Consumption by both households and the government remained flat on balance in the same period. The recovery is still fragile. Firstly, the economic growth in the past quarters has not been strong enough to ensure higher employment, and secondly, the developments in Ukraine and the Middle East form a clear downside risk.

Figure 1: GDP volume and spending components
Figure 1: GDP volume and spending componentsSource: Statistics Netherlands (CBS)

Exports drive the recovery

Exports have been the driving force behind the recovery in the Dutch economy for some time. Our exports grew immediately after the credit crisis, driven primarily by growth in emerging markets. Growth in the emerging world has subsided to some extent more recently, mainly due to lower economic growth in China. On the other hand, the Eurozone economy is growing again and our major trading partners like the United States and the United Kingdom are experiencing a further acceleration in growth. Although the GDP increase in the Eurozone was somewhat less in the second quarter, sentiment indicators in the destinations that are important for Dutch exports point towards a continuation of growth. Exports will be further boosted this year and next by a further decline of the euro against the US dollar and the British pound (figure 2).

Figure 2: Depreciation of the euro
Figure 2: The euro is declining against other major currenciesSource: Macrobond

The conflict in Ukraine is a particular risk for Dutch exports. International sanctions have now been imposed against Russia, which has reacted with a year’s ban on imports of vegetables, fruit, meat, fish and dairy products from member states of the EU, the United States, Canada, Australia and Norway. The Russian boycott of agricultural products affects 0.1% of the total exports of goods from the Netherlands. While this is a tiny proportion of our exports, the sanctions will have serious consequences for the Dutch agriculture and food industry.

The added value of the direct exports of boycotted goods to Russia for the Dutch economy last year amounted to approximately €300 million (CBS, 2014). Dutch producers also export large volumes of agricultural products to Poland and the Baltic states, which re-export some of these products to Russia. This type of export business is estimated to be worth a further €300 million to the Dutch economy, so that the total direct loss amounts to around 0.1% of GDP (€600 million). The agricultural sector is also suffering as a result of the Russian sanctions because the market price of certain products has declined.

Should the conflict escalate further there will be more sanctions and a larger proportion of Dutch exports will be affected. This scenario would also involve further damage to consumer and business confidence, and the as yet vulnerable economic recovery would quite probably be derailed. In the Global Economic Outlook section, we calculate the effect on global economic growth of the extreme scenario in which international tensions lead to a halving of growth in world trade in the second half of this year and in 2015. This scenario would have little effect on the annual GDP figure for the Dutch economy this year, but it would significantly reduce real GDP growth next year.

Investment is increasing further

The pick-up in home sales in the past quarters has led to an increased investment in housing. We expect an increase in new-build properties to push raise investment further in the second half of this year and in 2015.

After a steady increase last year and in the first quarter of 2014, capacity utilisation in the manufacturing industry declined somewhat in the second quarter. Propensity to invest also fell slightly in most sectors in the second quarter. Although there are still more business owners who expect investment to contract rather than grow this year, the general climate improved significantly last year (figure 3).

Figure 3: Propensity to invest is increasing
Figure 3: Propensity to invest is increasingSource: Statistics Netherlands (CBS)

Consumers still cautious

Consumer sentiment has greatly improved since the beginning of 2013 now that the European debt crisis has moved to the background, there is good news of a recovery in the housing market and the pace of the government’s austerity measures is easing. Confidence fell suddenly in August, probably due to the tensions in Ukraine and the Middle East (figure 4). The deterioration in sentiment was mainly visible in the sub-indicator that measures consumer sentiment with regard to the economic climate over the next 12 months. Propensity to make large purchases remained unchanged in August.

The improvement in confidence has not as yet led to a real recovery in private consumption. Consumption has not increased on balance over the past four quarters. Consumption of durable goods has however risen on an annual basis since last November (figure 5).

Figure 4: Consumer confidence falls due to international tensions
Figure 4: Consumer confidence falls due to international tensionsSource: Statistics Netherlands (CBS)
Figure 5: The fall in durable goods consumption comes to an end
Figure 5: The fall in durable goods consumption comes to an endSource: Statistics Netherlands (CBS)

We expect the recovery in the housing market to drive further growth in durable goods spending. Based on the past relationship between activity in the housing market and consumption, a 10% rise in property transactions in a particular quarter leads to a 0.7% increase in durable goods spending (Giesbergen, 2014). In the August edition of the Dutch Housing Market Quarterly we said we expected to see a total of 135 to 145 thousand transactions in 2014. This would boost consumption of durable goods by up to 2.2%. Recent developments indicate that this year will see a total of well above 145 thousand transactions, so consumption of durable goods could be somewhat higher than this. Private consumption will be supported by a further recovery in the housing market next year as well.

Limited room for tax cuts

The budget deficit this year will be lower than the limit of 3% of GDP set by the European Commission. It will be slightly higher than last year. This is due to the absence of the non-recurring proceeds of the 4G telecom auction and lower income from gas extraction. The underlying picture is however that the government finances are improving.

The fact that the Cabinet will not have to announce further cuts this year in addition to the measures already known is a positive factor. At the beginning of this year, the Cabinet made €500 million available to reduce taxation on middle and higher incomes in 2015. On Budget Day, the Cabinet will announce a further tax cut of around €500 million, partly through a 0.25% reduction of the lowest tax bracket. These amounts will come out of the deficit-reducing measures of approximately €7 billion in 2015 that are part of already intended policy (figure 6). So although the worst is behind us, the government will still be making significant cuts in spending next year.

Figure 6: Deficit-reducing measures
Figure 6: Deficit-reducing measuresSource: CPB Netherlands Bureau for Economic Policy Analysis

Employment is picking up in the private sector

There are cautious signs of recovery in the labour market. Unemployment fell in July for the third month in a row, from 6.8% of the labour force in June to 6.7% (Eurostat/ILO definition) (figure 7). The contraction in the number of jobs for employees virtually came to an end in the first and second quarters of this year (figure 8). In the second quarter the number of jobs in the private sector actually increased slightly on a quarterly basis.

The growing number of vacancies and an increase in hours worked by temporary personnel point to a further recovery in employment in the private sector in the rest of this year and in 2015. The recovery will probably be tempered by the fact that labour productivity in many sectors is still below the level at which employers are willing to take on personnel. We expect the most noticeable recovery in employment in absolute terms to occur in commercial services (Smid, 2014). While employment will increase further to some extent in the second half of 2014, it will still decline over the year as a whole.

Figure 7: Unemployment is falling
Figure 7: Unemployment is fallingSource: Statistics Netherlands (CBS)
Figure 8: Contraction in number of jobs is slowing
Figure 8: Contraction in number of jobs is slowingSource: Statistics Netherlands (CBS)


The Economic Quarterly Report is a publication of the Economic Research Department (KEO) of Rabobank Nederland and a co-production with Financial Markets Research van Rabobank International.

The views presented in this publication are based on data from sources we consider to be reliable. Among others, these include EcoWin, Land Registry, NVM, DNB, CPB and Statistics Netherlands. The economic growth forecasts are generated from the NiGEM global econometric structure models.

This data has been carefully incorporated into our analyses. Rabobank Nederland accepts, however, no liability whatsoever should the data or prognoses presented in this publication contain any errors. The information concerned is of a general nature and is subject to change.

No rights may be derived from the information provided. Past results provide no guarantee for the future. Rabobank and all other providers of information contained in this study and on the websites to which it makes reference accept no liability whatsoever for the content or for information provided on or via the websites.

The use of this publication in whole or in part is permitted only if accompanied by an acknowledgement of the source. The user of the information is responsible for any use of the information. The user is obliged to adhere to changes made by the Rabobank regarding the information’s use. Dutch law applies.

Abbreviations for sources: CBS: Statistics Netherlands, EIU: Economist Intelligence Unit, NIESR: National Institute of Economic Social Research, ONS: Office of National Statistics, OECD: Organisation for Economic Co-operation and Development.

Abbreviations used for countries: GB: Great Britain (UK), IE: Ireland, US: United States, HU: Hungary, DE: Germany, IT: Italy, NL: Netherlands, ES: Spain, PL: Poland, AT: Austria, FR: France, GR: Greece, TR: Turkey, ID: Indonesia, JP: Japan, BR: Brazil, RU: Russia, CN: China, BE: Belgium, FI: Finland, DK: Denmark, LT: Lithuania, EE: Eurozone, CY: Cyprus, PT: Portugal, SI: Slovenia

The Economic Research Department is also on the internet: www.rabobank.com/economics

For more information, please call the KEO secretariat on tel. +31 (0)30 – 216 2666 or send an email to economics@rn.rabobank.nl

Hans Stegeman, head of International Research, Economic Research Department
Tim Legierse, head of National Research, Economic Research Department

Graphics: Selma Heijnekamp and Reinier Meijer

Production coordinator: Christel Frentz


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