RaboResearch - Economic Research

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Green light for the Dutch economy

Economic Update

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  • Exports are picking up and producer confidence is still solid, despite international concerns
  • Household consumption is rising, along with consumer confidence
  • The labour market is recovering further
Table 1: Key data for the Netherlands
Table 1: Key data for the NetherlandsSource: Statistics Netherlands, Rabobank

Recent figures show that the Dutch economy is in good shape. Although the international situation is still uncertain, exports have picked up further and producers are optimistic. Household consumption and consumer confidence have also risen, and unemployment has fallen further.

Despite these positive figures, we are expecting only moderate economic growth in the next few quarters. We think that the contribution of exports to the economy will be relatively weak, given the lower level of growth in the Netherlands’ major trading partners. For 2016 as a whole, we are forecasting economic growth of 1¾ per cent; with 1½ per cent growth in 2017 (table 1).

Exports are picking up and producer confidence is still solid

Exports are picking up again. The volume of goods exports (seasonally adjusted) rose 1.8 per cent in July compared to the previous month. Exports are also doing well in the longer term. The growth of the 3-month average remains positive at 1.3 per cent. And the volume of exports was up 4.5 per cent in July compared to the same month last year (figure 1).

The Dutch export sector therefore appears to be resilient in the face of the continuing international uncertainties. However, since we expect growth at the Netherlands’ major trading partners to weaken, we expect growth in exports to be lower in the coming period.

Production in the manufacturing industry declined 0.8 per cent in July compared to the previous month. Despite this decline, the 3-month average is still clearly in positive territory. The leading indicators for production in the manufacturing industry are also positive. The PMI for manufacturing remained comfortably positive in September and producer confidence also recovered from 1.2 in August to 3.4 in September (figure 2). It would appear that producers see the negative effect of the result of the Brexit referendum on production as slight for the time being.

Figure 1: Exports are picking up
Figure 1: Exports are picking upSource: Statistics Netherlands
Figure 2: Producer confidence remains solid
Figure 2: Producer confidence remains solid and in line with productionSource: Statistics Netherlands

Households are now spending their extra income

The domestic picture is also positive. The volume of household consumption (seasonally adjusted) was up 0.8 per cent in July compared to the previous month and consumer confidence showed a strong increase from +2 in August to +8 in September (figure 3 and figure 4).

The strong month-on-month growth of consumption has pushed the 3-month average up to 1.1 per cent. There has only been one instance of such strong growth since 2007. Low inflation, increasing employment and five billion euros in tax cuts this year have provided a strong boost to disposable household income. It would seem that households have now decided to actually use this extra income for consumption.

One of the notable developments in consumer confidence is the more positive view of the economic climate. Consumers clearly do not expect the Brexit vote to have a direct negative effect on the Dutch economy. The propensity to purchase sub-indicator also rose, and is now at its highest level since 2007. This supports our expectation that consumption will continue to rise in the coming months.

Figure 3: Consumption is developing positively
Figure 3: Consumption is developing positivelySource: Statistics Netherlands
Figure 4: Consumer confidence rises
Figure 4: Consumer confidence risesSource: Statistics Netherlands

Labour market continues its recovery

Conditions in the labour market are steadily improving. Unemployment fell from 6 per cent of the working population in July to 5.8 per cent in August, driven by strong employment growth (figure 5). Unemployment is now 2.1 percentage points lower than its peak in February 2014. We expect the labour market to improve further next year. Labour supply will also increase, as more people look for work. This will temper the fall in unemployment to some extent.

Figure 5: Unemployment declines
Figure 5: Unemployment declinesSource: Statistics Netherlands

The recovery in the labour market is affecting all age categories. Whereas until last spring the decline in unemployment was mainly among people aged 25 to 45 years, those over 45 have also benefited since that time. In fact, this category has seen the highest growth in employment since last May, although it still includes the largest number of long-term unemployed.

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