RaboResearch - Economic Research

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The Netherlands: Dutch economy outpacing Eurozone average

Economic Update

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  • Dutch GDP increased by 0.5 percent q-o-q in the last quarter of 2018, and is expected to grow by 1.8 percent in 2019.
  • Additionally, house prices reached record-levels: since January, homeowners have to pay on average more than 300,000 euros for a house.
  • Declining sales amongst others will most likely cause a decrease in residential investments in 2019.
  • Manufacturing production slowed by 4.2 percent last December: the first decline since 2015, but this is probably only a temporary setback.
Table 1: Economic forecasts
Table 1: Economic forecastsSource: Rabobank

The Dutch economy saw GDP grow by 0.5% q/q in the last quarter of 2018, resulting in total growth of 2.5% in the past year. Although lower than 2017’s 2.9% growth, the Netherlands is still one of the Eurozone’s top economic performers. In the last months of 2018 household consumption, government consumption and investments picked up, contrasted by declining imports and exports. Statistics Netherlands explains the latter by a company that has shifted some of its activities abroad. This is in addition to economic activity abroad which has been slowing down. Next to trade there are other factors suggesting that the Dutch economy is running out of steam. Weakening manufacturing production, for example, together with declining housing investment and rising pessimism among consumers and producers. We therefore expect GDP growth to slow down to 1.8% this year.

Figure 1: Optimism all but gone
Figure 1: Optimism all but goneSource: Statistics Netherlands (CBS), Homeowners’ Association (VEH)
Figure 2: House prices continue to rise
Figure 2: House prices continue to riseSource: Dutch Land Registry, Statistics Netherlands (CBS), RaboResearch

High house price growth, declining confidence

An important driver of the Dutch economy in the past years has been the housing market. After a staggering price hike of 9.0% in 2018 as a whole, prices in January kept increasing: home buyers had to pay on average more than 300,000 euros, with the price index 8.7% higher than in January of 2017. Sales, on the other hand, continued their decline: in 2018, the total number of transactions fell by 9.7%, followed by a further 6% y/y decline in January.

For 2019, low mortgage interest rates and high rental costs are expected to continue to drive up prices. But we do not expect prices to rise as exuberantly as in previous years: owning a home becomes unattainable for more and more people. This is reflected in the confidence of the Dutch in the housing market: in January, confidence was only barely positive (see figure 1). We therefore expect a 6.0% price hike in 2019. We further expect sales activity to cool down even more. Construction of new homes is lagging behind, the supply of existing houses for sale remains low and we do not expect any of these factors to change substantially in the coming quarters.

Despite the strong decline in the number of houses sold, residential investment grew unexpectedly quickly in the last quarter of 2018: 2.7% q/q, following a small decline a quarter earlier. The uptick is probably due to a slight increase in newly-built houses, but cannot mask the fact that residential investment growth has been on a downward trajectory. We expect this will continue as construction companies are finding it difficult to attract new employees and the number of building permits issued is stagnating. Additionally, the decline in sales of existing homes suggest that homeowners could reduce investments in their own homes. We therefore expect growth in residential investment to be around 2.3% in 2019, whereas we expect a small contraction of 0.8% for 2020.

Figure 3: Sales expected to decline to below 200k
Figure 3: Sales expected to decline to below 200kSource: Dutch Land Registry, RaboResearch
Figure 4: Shrinking manufacturing production
Figure 4: Shrinking manufacturing productionSource: Statistics Netherlands (CBS)

Manufacturing production declines for the first time since 2015

Manufacturing production fell for the first time in more than three years, and sharply: average day production in December was 4.2% lower y/y (see figure 4). These developments were not unique to the Netherlands: German manufacturers saw production drop by an equally ‘impressive’ 4.0% in the last month of 2018. We expect this blip in Dutch manufacturing to have been temporary, with production picking up again in the coming months. This is further supported by the manufacturing PMI, which –at 55.1 in January- still points to further growth. The PMI is sliding though, being more than two points lower than in December. This seems due to ongoing geopolitical tensions such as the rapidly approaching Brexit, and the general slowdown in economic activity abroad. These factors also seem to be taking their toll on the confidence of producers: despite a small increase of the headline figure in February to 6.3, it’s well below the levels seen in the last two months of 2018. It underscores our expectations of lower growth in the coming quarters.

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