RaboResearch - Economic Research

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Dutch economy gets off to a better-than-expected start in 2015

Economic Update

  • Economic activity picks up early 2015
  • High contribution from international trade to GDP growth in first quarter
  • Consumption growth in first quarter greater than expected

Dutch economic growth ended the year strongly in 2014. This year, economic growth will gain further momentum, with household consumption making a contribution in addition to export growth.

Better-than-expected start to the new year

In the fourth quarter, real gross domestic product (GDP) rose by 0.8% compared to the previous quarter (Figure 1). This growth was driven partly by temporary upward effects in household consumption and housing investment. Although these factors no longer applied in the first quarter of this year, the economic dynamic was better than expected at the start of 2015. As a result, the drop in GDP growth will be less marked than previously thought. Consequently, our estimate for economic growth this year (1¾%) may well be somewhat too conservative. During the course of May we will review our projections.

Figure 1: Strong end of 2014 for the economy
Figure 1: Strong end of 2014 for the economySource: Rabobank
Figure 2: Exports growing and imports shrinking
Figure 2: Exports growing and imports shrinkingSource: Statistics Netherlands (CBS), Rabobank

Strong contribution from international trade to GDP growth

In recent months Dutch exports experienced unusually vigorous growth (Figure 2). In February, the volume of goods exports rose by 0.5% month-on-month, having grown by 1.9% in January (seasonally adjusted). This surge in growth can be partly attributed to the favourable economic climate in the country’s major export markets. In terms of added value, these are mainly Germany, the US and the U.K. Moreover, exports are being boosted by the depreciation of the euro vis à vis most other currencies. For the rest of the year we expect to see further growth in exports.

For imports, the picture is the reverse. In February, the volume of Dutch goods imports shrank by 0.9% month-on-month, after a drop of 0.8% in January. Clearly, this decline can be attributed at least partly to the depreciation of the euro. The combination of export growth and declining imports will translate in the first quarter into a strong positive contribution by international trade to GDP growth.

Consumers loosening their purse strings

Dutch household consumption rose by 0.6% in February, compared to January, after dropping by 0.4% in January (seasonally adjusted). The fall in consumption in January was due mainly to a drop in car sales following the introduction of tighter tax regulations from 1 January. However, because the underlying trend in consumption is showing a stronger recovery than expected, we envisage a positive contribution to GDP growth from household consumption in the first quarter again. Moreover, the recovery on the housing market is also stronger than anticipated. This means that for 2015 as a whole, consumption growth may well be higher than our current estimate of 1½%.

The increased consumption trend is clear from the year-on-year rise in spending on durable consumer goods of recent months. This is in line with the gradual rise in spending willingness. (Figure 3). In addition to improved sentiment, the rise in real disposable household income will have a positive impact on consumer spending.

Government putting the brakes on growth

The budget deficit in 2014 amounted to 2.3% of GDP, equalling the deficit of 2013. However, the numbers conceal an underlying clear improvement if we factor in the one-off profit in 2013 from the 4G auction and lower gas yields as a result of the relatively warm weather in 2014. In 2015, because of the cutbacks already accounted for, the government will make a negative contribution to economic growth. This year, we expect to see a further improvement in the deficit. Thanks to this favourable development, the cabinet envisages room for tax cuts in 2016. Although the budget deficit is well within the 3% deficit limit to permit this, the European Commission also looks at other indicators. According to one of these indicators, the structural budget balance, there is little room for tax reductions in 2016.

Figure 3: Willingness to buy gradually increasing
Figure 3: Willingness to buy gradually increasingSource: Statistics Netherlands (CBS)
Table 1: Key Data the Netherlands
Table 1: Key Data the NetherlandsSource: Statistics Netherlands (CBS), Rabobank

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