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The Netherlands: first quarter bodes for higher economic growth in 2015

Economic Update

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  • In the first quarter of 2015, the economy grew by 0.4% compared to the previous quarter
  • The main drivers of growth were private consumption and housing investments
  • Exports were much lower than expected, owing to a contraction in the export of services
  • Employment was down slightly due to cutbacks in health care

According to the first estimate by Statistics Netherlands, real gross domestic product (GDP) was up 0.4% in the first quarter of the year, compared to the last quarter of 2014 (Figure 1). In the fourth quarter of last year, temporary factors had an upward effect on growth. These included the expiry of the temporarily increased tax break for gifts and the imminent tightening of tax regulations in relation to environmentally friendly cars. These factors pushed up housing investments and car sales at the end of last year. For this reason we expected a somewhat larger drop in growth for the first quarter than has actually been the case. This good start in the first quarter of the year has induced us to revise our growth forecast for the Dutch economy in 2015 from 1¾% to 2% (Table 1).

Figure 1: Growth in the first quarter
Figure 1: Growth in the first quarterSource: Statistics Netherlands, Rabobank
Table 1: Key Data, The Netherlands
Table 1: Key Data, The NetherlandsSource: Statistics Netherlands, Rabobank

Temporary weakness in international trade

Exports disappointed in the first quarter. The drop in export volume was due to a contraction in the export of services, which can be attributed to lower revenues from royalties and licenses, for which we have no adequate explanation. That said, goods exports rose in the first quarter - by 0.9%. We are assuming the weakness is temporary and expect that exports will return to making a positive contribution to growth in the coming quarters, especially as they will be supported by the cheaper euro (Figure 2).

Manufacturing output in the Netherlands increased by 0.5% on a quarterly basis in the first quarter. The outlook for the manufacturing industry is favourable, with sentiment indicators developing positively. In May, the purchasing managers index (PMI) of the Dutch manufacturing industry rose to 55.5, reaching the highest level since December 2013 (Figure 3). Likewise in May, producer confidence, as measured by Statistics Netherlands, reached a four-year high of 4.1. Both sentiment indicators thus point to further growth in Dutch manufacturing during the months ahead.

Figure 2: Low euro exchange rate
Figure 2: Low euro exchange rateSource: Macrobond
Figure 3: Sentiment points to growth in the manufacturing industry
Figure 3: Sentiment points to growth in the manufacturing industrySource: Statistics Netherlands, Markit

Domestic spending on the rise

During the first quarter, private consumption rose by 0.3% q-o-q, up for the fourth successive quarter. Consumption of durable consumer goods has been particularly positive. This is due to the growth of the housing market. The increased number of house sales has led to a rise in the purchase of durable household goods[1]. In May, consumers were more positive about both the general economic climate and spending willingness (Figure 4). We expect this positive development of household consumption to continue. The steady rise in spending willingness among consumers and the growth of real disposable household income support this expectation.

Besides household consumption, housing investments also drove quarterly growth. The buoyant quarterly increase of 15.5% in the fourth quarter of 2014 was followed by a further substantial rise of 4.7% in the first quarter of this year. This is related to the higher than expected increase in the number of housing transactions in the first quarter of 2015, as well as the rise in newly built houses. We expect that business and housing investments will make a positive contribution to domestic demand in the coming quarters.

Footnote

[1] There is a positive correlation between the number of housing market transactions and the consumption of durable household goods. For more information, see our study (in Dutch): Herstel op de woningmarkt en consumptie woninginrichting: een vliegwieleffect?

Employment down due to health care sector

Employment contracted slightly in the first quarter of this year. The sector breakdown shows that this dip occurred mainly in non-commercial services (Figure 5). The drop was most marked in the health care sector, where the number of people employed fell sharply in the first quarter. By contrast, the number of those employed in the commercial services sector rose sharply. We expect that, on the whole, employment will rebound during the course of this year, thanks to further growth of jobs in the private sector. This expectation is supported by labour market indicators as well as the number of vacancies and temping hours. During the first quarter, the number of job vacancies rose for the seventh successive quarter.

Figure 4: Rise in consumer confidence
Figure 4: Rise in consumer confidenceSource: CBS
Figure 5: Fewer jobs in public sector and health care
Figure 5: Fewer jobs in public sector and health careSource: CBS, Rabobank
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Author(s)
Björn Giesbergen
RaboResearch Global Economics & Markets Rabobank KEO
+31 6 3047 8523

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