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The Netherlands: positive figures throughout, but waning confidence

Economic Update

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  • The Dutch economy is still expanding, with among others industrial production growing
  • But on the housing market the number of sales has declined further, while rising prices and limited choice are eating away at consumer confidence
  • The industry is also less optimistic about their future production, possibly stemming from international, geopolitical risks
Table 1: Economic forecasts The Netherlands
Table 1: Economic forecasts The NetherlandsSource: Rabobank

The Dutch economy has been churning out jobs in the first six months of this year at the fastest half-year-pace since 2008, while prices that buyers put down for owner-occupied homes are now well above those paid before the crisis. We therefore still expect economic growth in 2018 and 2019. Nevertheless signs of the Netherlands reaching the top of the business cycle are showing; declining homes sales could impact residential investment, while producers are losing some of their optimism amidst global uncertainties.

Stable unemployment rate belies strong jobs growth

Figure 1: More jobs and more workers
Figure 1: More jobs and more workersSource: Statistics Netherlands (CBS)

Even more persistent than the summer heat is the unemployment rate in the Netherlands: since March the seasonally adjusted rate has not budged from 3.9%. But that stability hides some very strong dynamics in the labour market. Jobs growth has been strong, but so has the flow of new workers into the labour market, resulting in an unchanged unemployment rate. In the first six months of this year, employment growth has on average been almost 43% higher than in the same months of 2017 and is now reminiscent of 2008. Together with high vacancy rates, this is pulling in previously discouraged unemployed workers into the labour market, boosting labour supply. In the first half of 2018 the number of people in the Netherlands that are either employed or seeking employment has grown on average 75% faster than in the same period of 2017, with the labour force now totalling more than 9 million people (figure 1). Over the summer, this increasing supply has matched job growth, but as the number of people still on the side-lines of the labour market dwindles to pre-crisis levels, it can be expected that in the second half of 2018 job growth will indeed push unemployment below 3.9%.

House prices continue rising, as sales slide

Figure 2: Construction loses momentum
Figure 2: Construction loses momentumSource: Statistics Netherlands (CBS)

Contrary to job growth, we expect housing investment to slow in the coming years. While the Dutch house price index has continued its push into uncharted territory, with the index now well above its pre-crisis peak, the number of sales declined further in June. In the first six months of this year there were 105,000 transactions in the owner-occupied housing market, an impressive figure compared to pre-crisis levels, but a tad short of the 114,000 in sales in the first half of 2017. Moreover, the number of building permits for new homes is stagnant below the level needed to close the gap between demand and supply for housing (figure 2). Similarly, the owner-occupied market indicator of the Dutch homeowner’s association, a leading indicator for transaction activity, is steadily declining Should this indeed lead to further declines in sales, then this could very well leave a mark on the Dutch economy, as in previous years it owed a large part of its growth to the housing market rebound, through higher consumer confidence and increased spending on for example kitchens and bathrooms.

Producers less optimistic about future activity

It is not just optimism about the housing market that is waning: following historic highs, producer confidence of Dutch manufacturing firms declined in recent months (figure 3). This is mostly due to lower expectations about future activity, possibly due to fears of lower demand from Germany – the Netherlands’ largest trading partner. That country’s Ifo index has been on a downward trend since the beginning of this year. It could also be a result of concerns about rising oil prices, Brexit and/or the US, China and EU trade conflicts. Bear in mind though that the latest survey precedes the recent visit of EU-president Jean-Claude Juncker to the White House, which to turned down the heat on the conflict between the trade bloc and the United States. Consequently, it remains to be seen if confidence will decline further in the coming months, as an all-out trade war seems to have been avoided, at least for now. Currently producers’ order books seem plenty full, as producers remain highly positive about their current order positions. And rightfully so, manufacturing is still expanding (figure 4), with a PMI of 58 in July (whereas 50 indicates as many firms saw an increase as a decline). This is less than in the preceding, record-setting months, among other things due to supply chain pressure from higher raw material cost, but is still well above historic levels. Waning confidence and lower-but-still-high output growth could therefore be another indication that the Dutch economy is nearing the top of its business cycle.

Figure 3: Expected production taking a dive
Figure 3: Expected production taking a diveSource: Statistics Netherlands (CBS)
Figure 4: Still growing, but less quickly
Figure 4: Still growing, but less quicklySource: HIS Markit, Statistics Netherlands (CBS)
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