RaboResearch - Economic Research

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Temporary weakness in Dutch economic recovery

Economic Update

  • Slow economic growth in second and third quarter of 2015
  • Growth of construction and manufacturing likely to return in the fourth quarter of 2015
  • Household consumption will probably contract in 15Q4, but will resume its growth trajectory in 2016 

Weak economic growth in the middle of 2015

Dutch economic growth was very modest in the second and third quarter of 2015. In both quarters, the rise in the GDP-volume was restricted to 0.1% (figure 1).
In the second quarter, this weakness had one clear cause: the sharp fall in the production of natural gas.

In the third quarter, this negative effect of gas production was gone. But private consumption stagnated. Private investment and exports did see further growth, but at a pace that was much reduced compared to the quarters before.

We do not interpret this economic weakness as a bellwether to the end of the Dutch economic recovery. For 2015 and 2016, we still expect GDP growth of 2% or more (table 1).

Figure 1: Broad based weakness in 15Q3
Figure 1: Broad based weakness in 15Q3Source: Statistics Netherlands (CBS)
Table 1: Key figures the Netherlands
Table 1: Key figures the NetherlandsSource: Statistics Netherlands (CBS), Rabobank

Growth to return to manufacturing and construction in fourth quarter

Part of the economic weakness in the third quarter can be attributed to temporary factors. The exports of goods volume stagnated while production of the manufacturing sector contracted. Monthly data up to and including October point to renewed growth. Also, producer confidence for the manufacturing industry has remained positive until the end of the year (figure 2). As such, we expect renewed growth for both exports and the manufacturing sector in the fourth quarter of last year.

Figure 2: PMI manufacturing remains in positive territory
Figure 2: PMI manufacturing remains in positive territorySource: Statistics Netherlands (CBS), Markit

Production in the construction sector also contracted in the third quarter. This was mainly the result of frontloading production to the second quarter, because the reduced VAT-tariff on labour costs for renovation and remodelling of homes was ended on July 1st. The temporary nature of the downturn in construction output is confirmed by monthly activity data for the sector up to and including October and sentiment indicators up to and including November.

Exceptionally warm weather to further restrain consumption growth

Next to exports, manufacturing and construction, private consumption was also rather weak in the third quarter. For consumption, we also expect a return to growth. But it is very likely that we will have to wait for this growth until the first quarter of 2016. The exceptionally high temperatures in November and December (figure 3) make a drop in household consumption very likely. Of course, this will not be caused by a conscious decision by households to reduce spending but rather because the central heating did not switch on as often as usual in that time of year. Due to the restrictions of the production ceiling in Groningen, the lower consumption of gas will predominantly lead to lower imports and hence have only a modest negative impact on GDP growth.

The savings of lower energy consumption will only become visible for most households in the course of 2016, with the annual bill from their energy company. This will then add to the already rising household disposable income. The further fall of the oil price in the past months will lead to lower than previously anticipated inflation and hence to a faster rise in real wages in 2016. Coupled with rising employment and the 5bn euro tax cut, this will lead to relatively fast growth of real household disposable income. Consumer confidence has reached levels that are positive enough to make sure that this rising income also translates into higher household spending. Although consumer confidence in the general economic situation and outlook has seen large swings over the past nine months and did not improve on balance, confidence in the housing market has resumed its upward path from August up to and including November (figure 4). The positive sentiment of consumers toward buying big ticket items has also steadily increased and reached the highest level in fourteen years in December 2015.

Figure 3: Exceptionally warm November and December
Figure 3: Exceptionally warm November and DecemberSource: KWA
Figure 4: Confidence in housing market and spending on big ticket items increases
Figure 4: Confidence in housing market and spending on big ticket items increasesSource: Statistics Netherlands (CBS), VEH
Tim Legierse
RaboResearch Netherlands Rabobank KEO
+31 88 726 7864

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