RaboResearch - Economic Research

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Dutch economy continues its recovery

Economic Update

  • Broad-based economic growth in 2015 and 2016
  • Exports picture still positive, but risks remain
  • Consumption growth continues

Notwithstanding the turbulence on the global financial markets and disappointing growth in the world economy, the Dutch economic recovery remains on track. Monthly data about exports, household consumption and house sales point to further economic growth in the third quarter.  Growth will probably be higher than in the second quarter, when it was dampened by the lowering of the ceiling for gas production in 2015, which appears to have impacted strongest on that quarter.

Thanks to increased domestic spending, we expect to see broad-based economic growth for this year and next. The resulting picture is considerably more positive than a few years ago. The Economic Sentiment Indicator (ESI) clearly shows that the Netherlands has once again joined the economic leaders of the eurozone (figure 1). Although downward risks prevail, these are mainly external in nature, such as a possible greater slowdown in Chinese growth.

Figure 1: The Netherlands rejoins eurozone leaders
Figure 1: The Netherlands rejoins eurozone leadersSource: European Commission
Table 1: Key Figures the Netherlands
Table 1: Key Figures the NetherlandsSource: Statistics Netherlands, Rabobank

Favourable exports picture, manufacturing lags behind

The export volume of Dutch goods in remained unchanged in August compared to July (seasonally adjusted). If exports remain stable in September, export growth will amount to 1% in the third quarter. Hence,  export growth remains equal compared to the first and second quarters. This points to a limited dampening effect of the lower growth in China. That said, if the slowdown in Chinese growth were to take an unexpected turn for the worse, Dutch exports could well be adversely impacted via a contraction in world trade growth and confidence effects.  Apart from risks of this nature, our export outlook remains positive. This year's growth will be higher than last year's, owing to the earlier euro depreciation compared to our main trading partners outside the eurozone (figure 2). Moreover, Dutch exporters are profiting from the recovering growth in the eurozone itself.

In contrast to this positive exports picture, the manufacturing industry shows more mixed development. In August, manufacturing output fell by 1.5% month-on-month, having already declined by 0.4% in July (seasonally adjusted). Momentum (growth of the three-month average) eased from 0.3% in July to -0.1% in August (figure 3). At the same time, the confidence among purchasing managers (PMI, Purchasing Managers Index) rose from 53 in September to 53.7 in October. This rise follows a deterioration in the PMI in the preceding months. Growth in new orders slowed to its lowest pace since mid-2014; if circumstances remain unchanged, this could lead to a weakening in the manufacturing industry towards the end of the year.

Figure 2: Euro declines against dollar and sterling
Figure 2: Euro declines against dollar and sterlingSource: Statistics Netherlands (CBS)
Figure 3: Weakness in manufacturing
Figure 3: Weakness in manufacturingSource: Statistics Netherlands (CBS)

Private consumption on the rise

Household consumption rose in August by 0.7% month-on-month, having slipped by 0.4% in July (seasonally adjusted). If consumption remains unchanged in September, total growth in the third quarter will amount to 0.5%. During the period ahead, consumption growth will be bolstered by a rise in real disposable household income. This will be due to the combination of lower inflation, higher wage growth and more employment.

Another positive factor supporting consumption is the higher number of house sales. Momentum (growth of the three-month average) in house sales amounted to 15.3% in September, while momentum in house prices reached 0.9% (seasonally adjusted). In recent quarters, the number of transactions had a positive knock-on effect on the consumption of durable household goods, such as furniture and electrical appliances (Giesbergen, 2015). For the coming quarters, we expect house sales to continue to drive consumption forward.

Consumption growth is also supported by a high level of consumer confidence. In October, consumer confidence increased by 3 points to 8, registering the highest level in eight years. The sub-indicator economic climate rose, showing that consumers are more positive about the economic situation in the past 12 months, but less optimistic about the economic prospects for the coming 12 months. Readiness to spend, which is the best predictor of future consumption, rose by 2 points in October to 0, thus reaching the highest level in five years.

Figure 4: Housing market continues its recovery
Figure 4: Housing market continues its recoverySource: Statistics Netherlands (CBS)
Figure 5: Consumer confidence increases further
Figure 5: Consumer confidence increases furtherSource: Statistics Netherlands (CBS)

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