Highest Dutch GDP growth in ten years: Netherlands leads Eurozone recovery
- The Dutch economy grew by 1.5 percent in Q2
- The Netherlands outpaced the solid growth in other Eurozone economies
- Both exports and consumption drove economic growth in the Netherlands
- Domestic and foreign demand can continue to drive a cyclical recovery
- Labour market figures in Q2 were also strong, but stronger wage growth yet to come
The Dutch economy showed strong growth in the second quarter of 2017. CBS (Statistics Netherlands) reported in its first estimate that the volume of gross domestic product (GDP) increased by 1.5 percent quarter-on-quarter (compared to a consensus forecast of 0.6 percent). To put this figure in context, this happened only twice before this century, the last time in 2007. Quarterly growth was exceptionally strong and it would thus be a surprise if performance during the third quarter was similar. But growth is broad based and the consumption and exports rest on strong foundations. Also, the fast increase in employment supports the view that the Dutch economy is experiencing a strong cyclical recovery.
The strong showing in the second quarter makes the Netherlands the economic frontrunner in the Eurozone; number two Spain grew by 0.9 percent in Q2. The Dutch economy will probably grow by over three percent this year.
Eurozone growth has strong foundation
Aside from the good news from the Netherlands, there is also positive news about the Eurozone. Growth in different member states is accelerating (Figure 1). Based on the most recent data, it seems that growth in France is driven by high export growth. In Germany and Italy, domestic expenditure is the main component. Growth in the largest member states has now been positive for several years. In addition, growth in earlier quarters was adjusted upwards in Germany, France and Italy.
Dutch growth appears durable
In the Netherlands, economic growth has been broad based (Figure 2). Exports grew by 1.8 percent q-o-q. Because import growth stalled, the contribution of net exports to GDP growth was substantial and made up nearly half of total growth this quarter. Household consumption contributed another quarter to the total. The remaining quarter was made up by government consumption, housing investment and stocks.
Even though we do not expect the contribution of net exports to be this substantial every quarter, we do think that export growth has a solid foundation. Dutch exports depend mainly on the Eurozone and now that Eurozone growth is picking up, the outlook for Dutch export growth is also improving.
Consumption is also growing robustly in a way typical of a cyclical recovery. Particularly, household expenditure on durables continued to increase in the second quarter, reflecting high consumer confidence. The sub-indicator ‘willingness to buy’, a leading indicator of the purchase of durable, has been doing well in recent months.
More jobs and more job openings
The labour market developed positively in the second quarter of 2017. Admittedly the growth of the number of people employed was a bit lower – 44,000 compared to 51,000 – than in the first quarter of this year, but historically the rise of employment is still remarkably strong. People found work mostly in the commercial services sector, which includes temporary employment agencies. Trade, transport and hospitality also saw a relatively large increase in workers. Meanwhile, the high demand for new houses and record number of sales of owner-occupied homes have driven demand for workers in the construction sector (see figure 2).
The rising number of employed people is in line with the strongly recovering Dutch economy where demand for labour is increasing. This demand is reflected in the number of job openings that Dutch employers have posted in the past quarter, which increased almost 11 percent compared to the first quarter of 2017. That is the strongest increase in vacancies in almost eleven years, and there are now roughly 204,000 job openings in the Netherlands, a number last seen in 2008 (see figure 3). Combined with declining unemployment, there are now just 2.2 people looking for work for every job opening, compared to 2.7 in the first quarter of 2017. Given the strong rise in the number of job openings we expect unemployment to decline further in the coming quarters. Meanwhile the shrinking pool of available people that employers can choose from when looking for new workers could finally start to lead to upwards wage pressure in the coming quarters, although the unemployment to vacancy ratio is still higher than before the economic crisis when wages did rise rather quickly. Furthermore, there is still a substantial reserve of potential labour from people marginally attached to the labour market and those with a job who want to work more hours.