Mixed picture in the Dutch economy
- Unexpectedly rapid growth in exports
- Inflation still negative
- Weak development of household consumption
- Unemployment falls further
Statistics Netherlands (CBS) has left its second estimate of real economic growth in the first quarter of 2016 at 0.5% compared to the last quarter of 2015. There are however changes to the spending components: household consumption volume and investment in housing are upwardly adjusted, while the volume of exports and imports are adjusted to the downside.
The revision does not imply a change to our growth estimates: our base forecast continues to be for broadly based growth in both 2016 and 2017. The most recent monthly figures do however present a mixed picture of the economy: export volume increased unexpectedly rapidly, while household consumption was disappointing. The potential negative effects of the result of the Brexit referendum for the Dutch economy in 2016 and 2017 are hard to estimate at this time. The increased level of political uncertainty in both the UK and the eurozone does not bode well for the resilience of the recovery. We will give a further assessment of these effects in the coming weeks.
Strong export growth in April
The volume of Dutch exports in real terms increased strongly in April by 4.0% m-o-m (seasonally adjusted). This strong growth in exports has kept momentum (the growth rate of the 3-month average) positive (Figure 1). It should however be noted that international trade data has been highly volatile in recent months, with frequent revisions. Nevertheless, the data suggest that Dutch exports are still growing strongly despite the uncertain international environment.
Besides exports, manufacturing also increased strongly in April, with m-o-m growth of 1.3%. Since production volume in manufacturing fell sharply in the previous month, the momentum is still negative on balance. Looking ahead, producer confidence rose again in June, indicating further growth in manufacturing in the coming months. It should be noted that this survey was taken before the result of the Brexit referendum was known. The uncertainty arising from this result may lead to a decline in producer confidence in the coming months.
Inflation still negative
Inflation as measured by the European HICP remained negative in May, at -0.2% (Figure 2). The main factors depressing inflation were energy and fuel prices, caused by a y-o-y decline in oil prices. Now that oil prices have turned up again in recent months, we expect the negative effect of energy and fuel prices to disappear from the inflation figure in the coming months. This will lead to inflation picking up again. However, it is notable that core inflation (inflation excluding food, energy and rent) is extremely low. This suggests that low inflation may be structural in nature, possibly due to weak demand.
One explanation for weak demand could be the low growth of consumption volume in real terms. Household consumption was again disappointing in April: compared to the previous month, consumption declined by 0.7%, meaning that momentum is now close to zero (Figure 3). The weak increase in consumption is notable, since disposable household income is significantly higher this year due to strong growth in wages in real terms and the tax cuts amounting to five billion euros. This boosted consumer confidence in June from +1 to +5. The uncertainty arising from the Brexit referendum result may however mean that consumer confidence will decline in the coming months.
Unemployment falls further
Unemployment fell to 6.3% in May, due mainly to lower labour supply. Looking back a little further, we see a clear downward trend in the number of people unemployed: unemployment is now 1.3% below its level two years ago (Figure 4). This shows that the economy is recovering. The growth in employment is happening mainly in the private sector. It would also appear that after years of downsizing, employment in the public sector is no longer in decline. This gives confidence that employment can increase further in 2016 and 2017. However, the labour supply is also expected to rise, so unemployment will fall only gradually in the next two years: we expect unemployment of 6¼% in 2016 and 6% in 2017.