RaboResearch - Economic Research

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Moderate growth Dutch economy at the end of 2015, outlook for 2016 positive

Economic Update

  • Consumption lower in fourth quarter of 2015, probably due to warm weather
  • Low inflation good for purchasing power
  • Fall in unemployment in December 2015 due to rise in number of jobs
  • Weak development in exports

Dutch Gross Domestic Product (GDP) showed weak growth in the second and third quarters, partly due to temporary factors. Recent figures point to only moderate growth in the fourth quarter of 2015. Monthly data indicate that exports were weak at the end of 2015. Private consumption probably also fell in the final quarter of 2015. This was caused by relatively high average temperatures in November and December of last year, with a fall in consumption already in November (figure 1).

The Dutch economy started from a relatively high level of economic activity thanks to the growth rates achieved before then. We therefore still expect an increase in GDP volume for 2015 as a whole of 2%. In 2016 we expect to see this growth accelerate to a rate of 2½% (table 1). Important factors driving this include higher employment levels and the reduction of five billion euros in taxation, which will lead to an increase in private consumption. However, greater uncertainty internationally constitutes a negative risk for this outlook.

Figure 1: Fall in private consumption
Figure 1: Fall in private consumptionSource: Statistics Netherlands
Table 1: Key data for the Netherlands
Table 1: Key data for the NetherlandsSource: Statistics Netherlands, Rabobank

Low inflation good for purchasing power

Inflation in the Netherlands remained relatively low in December 2015 at 0.5% (figure 2). Average inflation for 2015 as a whole was 0.2% using HICP, the European harmonised index. This is the lowest recorded rate since this indicator came into use in 1997. Given the economic recovery expected in 2016, we do however expect inflation to rise gradually to 1% over 2016. This figure may even be lower due to the fall in oil prices at the start of the year.

Figure 2: Positive changes in real wages
Figure 2: Positive changes in real wagesSource: Statistics Netherlands

Low inflation has a positive effect on household’s purchasing power. Since 2014, pay increases in collective bargaining agreements have once again started to outrun average price increases; this has had a positive effect on changes in real wages, in 2015 in particular. We expect wages to continue to rise faster than inflation in 2016 too.

Gradual recovery in the labour market

In December 2015, unemployment fell to 6.6%, in part due to an increase in the number of jobs (figure 3). This meant that average unemployment in 2015 was 6.9%, slightly down on the level of 7.4% in 2014.

Figure 3: Fall in unemployment
Figure 3: Fall in unemploymentSource: Statistics Netherlands

We expect the labour market to recover further in 2016. In addition to the economic recovery, various other indicators point to continued growth in employment. Increases in the number of hours worked by temporary personnel are associated with increases in the number of people in work in the private labour market (Badir, 2014), and the number of hours has now risen for seven consecutive quarters. The number of job vacancies has also increased, for nine consecutive quarters. Furthermore, we expect less of a decline in the number of jobs in healthcare in 2016 compared with 2015 because the worst effects of the reforms and cuts in that sector have probably already been felt. On the other hand, the supply of labour will probably increase in 2016 too due to higher labour participation rates, which will slow down the decline in unemployment. On balance, we expect the growth in the number of jobs to be enough to cause unemployment to fall to an average of 6¼% in 2016.

Weakening in exports at the end of 2015

Exports fell by 1% (seasonally adjusted figure) in November 2015 compared with October. This means that in the last six months there was a negative momentum (i.e. change in the three-monthly average compared with the previous three months) of 0.1% (figure 4). Although the figures are often subject to large revisions, it seems possible that the growth in exports in the fourth quarter of 2015 will turn out to be weak again or even negative. This weak growth in exports seems quite logical given the recent worries in the financial markets about the condition of the global economy. However if we consider the economic growth of our main trading partners, a return to export growth still looks more likely.

Figure 4: Negative momentum in exports
Figure 4: Negative momentum in exportsSource: Statistics Netherlands, Rabobank

We expect economic growth in the eurozone, still the main trading region for the Netherlands, to be sustained in 2016. At the same time there are significant international uncertainties. A slowdown in growth in China that is greater than expected, a possible weakening in global trade or interest rate increases in the United States that come too soon all constitute negative risks for our forecasts of export growth in the Netherlands.


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