RaboResearch - Economic Research

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Dutch economic growth slows

Economic Update

  • Growth in Q2 2016 likely to be lower than expected
  • Slowdown partly due to sharp drop in industrial output in May
  • Consumption remains weak; exports perform above expectations
  • Manufacturing PMI increases despite result British referendum
  • Consumer confidence lower after Brexit but remains positive
  • Further drop in unemployment

Recent data indicate that real GDP growth in the second quarter will probably turn out lower than we had originally expected. Real household consumption growth will likely be tepid, despite a jump in real disposable income. Moreover, an unprecedentedly sharp month-on-month fall in gas production in May could push the GDP result for Q2 2016 down by up to 0.3%-point. Consequently, growth in the second quarter is likely to be lower on balance than we had predicted earlier. Partly for this reason, we have made a downward adjustment of ¼% to our forecast for 2016 as a whole.

Table 1: Key data, the Netherlands
Table 1: Key data, the NetherlandsSource: Statistics Netherlands (CBS), Rabobank

For both 2016 and 2017 we continue to expect broad-based economic growth in the Netherlands. In addition to the above adjustment for 2016 following less favourable economic developments in recent months, we have also made a downward adjustment to GDP growth for 2017 of ¼%. This is chiefly on account of increased economic uncertainty and possible negative effects as a result of the UK referendum outcome. That said, we note that unemployment has fallen relatively rapidly in recent months to 6.1% - the lowest level since 2012.

Sharp drop in industrial output in May

The most remarkable number released last month was May's industrial output. Total industrial production fell by 7.7% month-on-month (seasonally adjusted) - an unprecedentedly severe drop. This was caused by an extreme m-o-m decline of almost 50% in gas production. If industrial output remains unchanged for June, this means that it will have dropped by 1.8% in Q2 2016 compared to the previous quarter. Accordingly, GDP could decline by up to 0.3% point in the second quarter.  

Manufacturing output likewise dipped in May - by 0.5%. On a more positive note going forward, producer confidence in the manufacturing sector in July - the first measurement after Brexit - scarcely dropped compared to June, which had recorded the highest level in five years. Manufacturing PMI in July even increased.

The real export volume of goods declined in May by 0.2% m-o-m (our own seasonal adjustment). That said, momentum (growth of the three-month average) remained positive, thanks to strong growth numbers in April (figure 2). Assuming unchanged export volume for June, this means exports in Q2 2016 will have increased by 3.3%. This level of growth is virtually unprecedented, which makes it likely that growth will be negative in June, or that the data will be revised. Nonetheless, the data show that Dutch exports are growing at a robust pace, despite the prevailing international uncertainty. 

Figure 1: Industrial production cools
Figure 1: Industrial production coolsSource: Statistics Netherlands (CBS)
Figure 2: Export momentum unexpectedly strong
Figure 2: Export momentum unexpectedly strongSource: Statistics Netherlands (CBS)

Consumer confidence lower after Brexit result but still positive

In May, real consumption volume rose by 0.9% compared to the previous month (our own seasonally adjusted series). Although this boosted momentum a little, it remains relatively weak (figure 3). If consumption volume remains unchanged in June, this will mean scarcely any increase on a quarterly basis. Weak growth in consumption is surprising given that household disposable income has risen considerably this year, thanks to strong real wage growth and a tax relief package worth five billion euro in the Netherlands.

Dutch consumer confidence in July, the first measurement since the Brexit result, fell from +5 to +1 (figure 4). People have become more negative in their expectations for the economic climate in the coming 12 months; this appears to be closely related to the Brexit result. However, the decline in confidence is modest, certainly in comparison to the sharp deterioration in sentiment at the start of the year, which was triggered by uncertainty on the stock markets. Moreover, there has been hardly any decline in the sub-indicator willingness to buy - often a good predictor of household consumption. In addition, consumer confidence is still well above the historic average, leading us to rule out the likelihood of a strong downward effect on consumption volume in the short term.

Figure 3: Weak development of household consumption
Figure 3: Weak development of household consumptionSource: Statistics Netherlands (CBS)
Figure 4: Dip in consumer confidence after Brexit
Figure 4: Dip in consumer confidence after BrexitSource: Statistics Netherlands (CBS)

Unemployment falling quicker than expected

Figure 5: Declining trend in unemployment
Figure 5: Declining trend in unemploymentSource: Statistics Netherlands (CBS)

Unemployment fell from 6.3% to 6.1% in June (figure 5). It is particularly encouraging that the improvement was entirely due to a strong rise in employment. Joblessness has been declining steadily since early 2014, and has surprised us positively with a more rapid pace in recent months.   

Martijn Badir
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO

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