RaboResearch - Economic Research

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Dutch economic recovery in 2016 still driven by exports

Economic Update

  • Recent confidence figures indicate further growth of the Dutch economy
  • Exports and manufacturing output registered strong growth in January
  • Consumption declined in January, accompanied by a drop in confidence

Recent confidence figures point to further recovery

According to the second estimate of Statistics Netherlands (CBS), the Dutch economy grew by 0.3% quarter-on-quarter in the fourth quarter of 2015. Thus, growth remained unchanged compared to the first estimate. Adjustments to earlier quarters pushed overall GDP growth for 2015 slightly upwards from 1.9% to 2% (table 1).

In addition, Statistics Netherlands published data about government finances in 2015. Last year, the government deficit amounted to 1.8% of GDP, and government debt was 65.1% of GDP. Both show a drop compared to 2014, with the decline in government debt even more marked than we had envisaged until recently.

The Economic Sentiment Indicator (ESI) stood at 102 in March, pointing to further growth of the Dutch economy. That said, the sentiment index shows a slightly downward trend in recent months (figure 1). This is chiefly due to a decline in the sub-indicators that measure consumer confidence as well as retail sector confidence. The picture painted by the ESI roughly correlates with recent monthly data on the Dutch economy. Data on international trade and Dutch manufacturing output were relatively good, whereas the picture for domestic consumption in the same month was somewhat weaker.

Figure 1: ESI sub-indicators for retail and consumption relatively weak
Figure 1: ESI sub-indicators for retail and consumption relatively weakSource: European Commission
Table 1: Key data for the Netherlands
Table 1: Key data for the NetherlandsSource: CBS, Rabobank

Strong January figures for exports and manufacturing output

In January, goods exports rose by 4.3% month-on-month (seasonally adjusted). This means the momentum (change in the three-month average compared to the three previous months) in exports amounted to 2.3% - the highest in almost three years. Growth in imports was also strong in January. However, because imports had declined sharply in the preceding two months, the momentum remained negative in January (-0.4%).

At first glance, January's high export growth appears to be at odds with the picture of a weak global economy. Moreover, international trade is a volatile series that has recently been subject to a considerable number of revisions. It will become clearer in the coming months whether favourable January exports were a one-off or indeed a reflection of ongoing acceleration of export growth.

Figure 2: Growing optimism among purchasing managers in manufacturing
Figure 2: Growing optimism among purchasing managers in manufacturingSource: Markit, CBS

In any case, the positive export growth in January was reflected in manufacturing output data for that month. Production in the manufacturing industry rose by 0.5% month-on-month in January, while momentum increased to 2.4%. Various sentiment indicators for the manufacturing industry recovered in March, following a decline in earlier months. The Purchasing Managers Index (PMI) rose to 53.6 in March (figure 2), pointing to further output growth in the months ahead.

Consumption down in January

Consumer confidence declined further in March, dropping to -4. The drop in confidence was reflected solely in a decline in the sub-indicator for economic climate, which fell from 6 in February to -7 in march. By contrast, willingness to buy rose by 3 points, reaching -2. The decline in the confidence index in March may possibly be linked to uncertainty about geopolitical tensions and the refugee crisis in Europe. The situation was exacerbated this week by the news that funding ratios of Dutch pension funds had shrunk further, increasing the likelihood of pension cuts in 2017. This could continue to dampen sentiment among consumers in the coming months.

Household consumption fell by 0.3% month-on-month in January (seasonally adjusted) mainly because consumers brought their car purchases forward to December. The reason was that from 1 January the tax treatment of company cars has become less favourable and taxes on cars and motor cycles were increased. This pushed down the momentum for household consumption to -0.3% in January.

Figure 3: Housing market confidence at a record high
Figure 3: Housing market confidence at a record highSource: CBS, Vereniging Eigen Huis

On the domestic market, the picture remains largely positive, despite the decline in consumer confidence. Transaction numbers on the housing market maintained a high level in the first two months of 2016. The Homeowners' Association Market Indicator rose to 115 in February, the highest level since the start of the indicator (mid 2004) (figure 3). This is in line with the rise in the consumer confidence sub-indicator which measures willingness to make large purchases. Moreover, there are various factors which will lead to stronger recovery of real disposable household income this year, compared to last year. These include low inflation, the government's five billion euro tax relief package and a further rise in employment. We therefore expect to see growth in household consumption during the coming quarters.


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