RaboResearch - Economic Research

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The Dutch economy is gaining momentum

Economic Update

  • The strong economic growth in the Netherlands is broad-based
  • The volume of exports is rising further, despite the international uncertainties
  • Private consumption is supported by favourable fundamentals
  • Confidence indicators are strongly positive
  • Unemployment is falling, but at a slower pace
  • International uncertainties are still a risk for growth

The Dutch economy is clearly going through a phase of strong recovery. According to the second estimate from Statistics Netherlands (CBS), Gross Domestic Product (GDP) increased by 0.8 of a percentage point in the third quarter of 2016 compared to the previous quarter. The first estimate was an increase of 0.7 per cent. The economy also grew strongly in the first two quarters of 2016, increasing by 0.7 per cent in both quarters. Recent monthly figures also suggest a strong increase in GDP in the fourth quarter of 2016, so it would seem that private consumption is likely to continue to grow strongly. We expect economic growth of 2.0 per cent in 2016 and 1.8 per cent in 2017 (table 1). The slightly lower growth in 2017 will be due to the increased international uncertainties, with a slight weakening of export growth. We also expect private investment to show less explosive growth.

Table 1: Key data for the Netherlands
Table 1: Key data for the NetherlandsSource: CBS, Rabobank
Figure 1: Dutch growth is broad-based
Figure 1: Dutch growth is broad-basedSource: CBS, Rabobank

Strong exports, despite international uncertainties

Figure 2: Momentum of exports is unexpectedly strong
Figure 2: Momentum of exports is unexpectedly strongSource: CBS, Rabobank

The most remarkable figure in recent months has been the relatively strong growth of exports. The volume of goods exports increased by 1.3 per cent month-on-month in October (seasonally adjusted by Rabobank) and even by 5.2 per cent year-on-year. The strong growth in exports in recent months indicates that exports are not apparently affected by the international uncertainties. However, if we look at the prospects for economic growth for our major trading partners, a decline in the growth of exports in the coming months would seem to be more likely.

Favourable fundamentals for domestic consumption

Figure 3: Wages growth now well above inflation
Figure 3: Wages growth now well above inflationSource: CBS

The volume of household consumption rose 1.2 per cent in October 2016 compared to the previous month (seasonally adjusted by Rabobank), the largest increase in over three years. The main cause of this is the strong increase in disposable household income. Very low inflation and steady wages growth have brought about a relatively strong increase in real wages (figure 3). Wage increases in collective labour agreements averaged 1.9 per cent in 2016, the highest increase since 2009. The increase in employment also means that households have more money to spend. In 2016, households also had more money to spend due to the 5 billion euro package of tax cuts introduced on 1 January 2016. We expect inflation to rise gradually in the coming months, mainly because the negative effect of oil prices will disappear from the figures and real wages will rise slightly less strongly in 2017.

Confidence indicators at record highs

Figure 4: Consumer confidence at highest level since the crisis of 2008
Figure 4: Consumer confidence at highest level since the crisis of 2008Source: CBS

The confidence figures also confirm that things are going well. Although consumer sentiment remained unchanged in December, consumer confidence is at its highest level since 2008 and is well above the average level over the past 20 years (figure 4). Business owners with a positive view have also prevailed since October 2014, and producer confidence in industry is also well above the 20-year average. Based on historical relationships, we can expect industrial production to rise further in the coming months.                           

Fall in unemployment is flattening off

Figure 5: Unemployment is falling more slowly
Figure 5: Unemployment is falling more slowlySource: CBS

The positive economic developments are also visible in the labour market. There are now less than half a million people unemployed, for the first time since the beginning of 2012. There were 499,000 people without a job in November, representing 5.6 per cent of the working population. The fall in unemployment was slightly less rapid between September and the end of November 2016 than during the summer, averaging 7,000 per month. The decline in the summer was particularly marked among older workers. The unemployment rate for workers aged 45 or over in October and November remained stuck at 5.1 per cent. We expect the fall in unemployment to be less rapid in the coming months as well, since the increase in employment will not be as strong and the labour supply will increase further due to policy effects (in particular the increase in the age of entitlement to state retirement pension) and the stimulating effect of the recovery in the labour market on labour participation.

Rita Bhageloe-Datadin
RaboResearch Global Economics & Markets Rabobank KEO
+31 88 726 7864

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