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The Netherlands: a good economic beginning is half the battle

Economic Update

  • GDP growth 2014Q4 adjusted upward from 0.5% to 0.8% after second CBS estimate
  • Government finances in 2014 turned out better than expected
  • Export growth shows acceleration at the start of this year
  • Slight drop in private consumption and manufacturing output, but outlook positive

Statistics Netherlands (CBS) has made an upward adjustment to Dutch GDP growth for the fourth quarter of 2014. Accordingly, GDP volume was adjusted from 0.5% to 0.8% compared to the previous quarter. This improvement is largely due to higher corporate and residential investment. We expect GDP growth to have slipped a little in the first quarter of this year, because many one-off factors contributed to quarterly growth in the last quarter of 2014. For 2015 as a whole we assume GDP growth of 1¾% due to higher export growth and an increase in domestic spending. In 2016 the economy is likewise expected to grow by 1¾% (Table 1).

Besides the upward adjustment to GDP growth in the fourth quarter of 2014, more is now known about the government deficit and government debt over the entire year of 2014. The budget deficit amounted to 2.3% of GDP (Figure 1), equalling the deficit ratio of 2013. This was a positive surprise, as 2014 no longer had the one-off profits from the 4G auction and also had lower gas revenues due to the relatively warm weather in 2014 compared to the previous year. Government debt also improved, amounting to 68.8% of GDP in 2014.

Table 1: Key data the Netherlands
Table 1: Key data the NetherlandsSource: Statistics Netherlands (CBS), Rabobank
Figure 1: Improved government finances
Figure 1: Improved government financesSource: Statistics Netherlands (CBS), Rabobank

Exports shift up a gear

The growth of exports of Dutch goods accelerated at the start of this year. In January, goods exports increased by 3.7% compared to December 2014 (seasonally adjusted). Momentum (3month/3month average) thus reached its highest point since September 2009 (Figure 2). This growth acceleration was supported by the decline of the euro against the US dollar. Accordingly, Dutch exports for 2015 have got off to a good start, and the positive trend of 2014 continues. For the coming quarters we assume further export growth. Purchasing Managers Indices (PMI) in the country's main export destinations endorse this picture (Figure 3). These PMIs point to further growth in the Dutch manufacturing industry (see below) and its associated exports, in the months ahead.

Manufacturing output declined month-on-month by 1.1% in January 2015 (seasonally adjusted). In the last three months of 2014, manufacturing output rose slightly. Thus there was a drop in the first month of the new year. Looking ahead, we expect the manufacturing industry to be boosted by increasing domestic demand. In March, the Dutch PMI showed a slight rebound, registering 52.5 (Figure 3). In addition, producer confidence for the manufacturing industry, as measured by Statistics Netherlands declined in March. However, both sentiment indicators still point to growth in Dutch manufacturing. The positive development of exports likewise points to growth in manufacturing (Figure 2). Accordingly, we expect that this sector will gain momentum, despite getting off to a poor start at the beginning of the year.

Figure 2: Exports gaining further momentum
Figure 2: Exports gaining further momentumSource: Statistics Netherlands (CBS), Rabobank
Figure 3: Sentiment still pointing to growth
Figure 3: Sentiment still pointing to growthSource: Markit, Bloomberg

Consumers doing their bit too

In 2014 household consumption made a relatively low contribution to GDP. This was because of the warm weather, which had a negative influence on gas consumption. In January 2015, private consumption declined compared to December 2014, but this was no surprise given the strong growth at the end of last year. Compared to January 2014, the highest year-on-year growth was achieved since November 2010 (Figure 4). Moreover, consumer confidence rose in March this year, with consumers increasingly positive about the general economic climate. That said, willingness to buy rose only slightly. Besides improved sentiment, this year, the rise in real disposable household income will have a positive impact on household spending. In view of these developments, we expect Dutch household consumer spending to contribute more to GDP growth in 2015.

Unemployment amounted to 7.1% in February (Eurostat/ILO definition), from 7.2% in January. This slight drop was virtually entirely due to a decline in the labour supply. For the coming months we envisage a further drop in unemployment because there will be an increase in employment. This is suggested by labour market indicators, such as the rise in the number of hours worked through temp agencies (Figure 5). When employment picks up, the first signs are often seen in the fact that companies hire in more flexible labour, such as temporary workers from temp agencies.

Figure 4: Strong January performance thanks to gas normalisation
Figure 4: Strong January performance thanks to gas normalisationSource: Statistics Netherlands (CBS)
Figure 5: Increase in hours worked through temp agencies
Figure 5: Increase in hours worked through temp agenciesSource: Statistics Netherlands (CBS), Rabobank
Björn Giesbergen
RaboResearch Global Economics & Markets Rabobank KEO
+31 88 726 7864

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