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The Netherlands: GDP growth held back by lower gas production

Economic Update

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  • GDP growth in 15Q2 was very negatively impacted by lower gas production
  • Underlying economic growth remains on track
  • Sentiment indicators point to growth of manufacturing production and private consumption
  • Home sales and prices continue to grow throughout 2015 and 2016

Next week Statistics Netherlands (CBS) will publish the first estimate of Dutch GDP growth in the second quarter of 2015. Quarterly growth seems to have been very negatively impacted by lower gas extraction. The government decision in February to reduce the maximum allowed gas production from the Groningen field in the first half of the year to 16.5 billion cubic meters and the uncertainty about the total limit that the government would set for 2015 has resulted in a rather drastic fall in extraction for the second quarter (figure 1). The consumption of gas in April and May has been higher than or the same as last year, whereas the production of gas dropped by 30% in April and by 56% in May compared to 2014. This clearly indicates that the fall in production was not driven by demand.

Table 1: Key figures for the Netherlands
Table 1: Key figures for the NetherlandsSource: Statistics Netherlands, Rabobank
Figure 1: Mining production drops drastically
Figure 1: Mining production drops drasticallySource: Statistics Netherlands

The drop in the production of gas will most likely lead to lower 15Q2 GDP growth than our current forecast, but we expect this quarterly drop to be a one-off effect. Looking at the total impact of the reduction in the production ceiling for the Groningen gas field, we have already taken the ½%-point reduction in GDP growth that this will have into account in our growth forecasts for 2015 as a whole (table 1). So while 15Q2 growth is set to disappoint, underlying economic growth remains on track. 

Figure 2: Dutch PMI points to growth
Figure 2: Dutch PMI points to growthSource: Statistics Netherlands, Markit

Sentiment among Dutch manufacturing producers, for instance, stands at high levels. Producer confidence, which is measured by Statistics Netherland, and the PMI took a small hit in July from the Greek crisis, but both indicators are still at levels that coincide with growth of production and exports (figure 2). Recent figures fail to meet these expectations, but production growth is gradually picking up and can be expected to accelerate in the months ahead.

Consumers’ willingness to buy at highest level since 2007

On the consumers side most signs point to growth as well, indicating higher private consumption in the second half of this year. Consumer confidence dropped slightly in July, which can be entirely attributed to a less optimistic view of consumers about the general economic climate in the next twelve months. This sub indicator is much driven by geopolitical and economic turmoil, most recently the increased possibility of a Grexit and sharp falls on the Chinese stock exchange. However, consumers’ willingness to buy, also part of consumer confidence, has been growing steadily since mid-2013 and stands at its highest level since the beginning of the crisis. More than half of the consumers currently feel it’s a favourable time for large purchases (figure 3). Despite these figures, private consumption growth in 2015 so far has been somewhat disappointing. Compared to last year monthly figures are positive, but between December last year and May 2015 private consumption declined slightly. However, given the improving housing market (see below), which has a positive impact on the consumption of durable goods, the slow but steady rise of employment and growing real wages we expect private consumption to rise throughout the rest of the year.

Figure 3: Consumers are more willing to buy
Figure 3: Consumers are more willing to buySource: Statistics Netherlands
Figure 4: Home sales and prices grow steadily
Figure 4: Home sales and prices grow steadilySource: Statistics Netherlands, Rabobank

Home sales and prices continue to rise

Since June 2013 the number of sales of existing homes has been growing fast and steadily, with only one big interruption in this year’s first quarter. As a result, house prices have also been growing in the past year and a half, albeit at a slower pace than sales (figure 4). Just like in 2012, the recent peak and drop in sales around the turn of the year resulted from changing tax regulations and credit standards. Stricter rules pushed buyers to buy their homes before the rules were being implemented. The second quarter rebound in home sales now has confirmed the underlying trend of growth in housing market activity. Figures from the Dutch Association of Real Estate Brokers (NVM) on pending home sales point to further growth in the third quarter. We expect home sales to grow further in the remainder of this year and to stabilise in 2016. House price growth is expected to accelerate somewhat next year, but will remain modest compared to the decade before the crisis erupted. See our recent Housing Market Quarterly for a comprehensive analysis of the Dutch housing market.

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