Dutch Economy in Focus
Group Economics
Economy is catching up 11 September 2015
Dutch economy is catching up After seven years of below-trend growth, the Dutch economy is now growing robustly, starting to make up for earlier losses. The economy is doing well and is growing faster than last year. In the first half of the year gross domestic product (GDP) gathered further pace, accelerating to a year-on-year average of 2¼%. Growth is also more broadly based than before. Apart from exports, which continued to increase in the recent lean years, investment and subsequently consumption have also been driving GDP growth for some time now. Ongoing recovery in key export markets can help to maintain this momentum: we foresee a slight quickening of growth both in the US and the eurozone in the second half of the year. Our baseline scenario does not assume a hard landing of the Chinese economy. However, downside risks to the growth outlook of China and other emerging markets have increased. With the lower oil price and cheaper euro providing added buoyancy, GDP could rise by some 2¼% this year. Actually, the picture is even better, as growth is currently being depressed by around ½% point due to the significant reduction in gas extraction in Groningen. Lower gas production dampened GDP growth in the second quarter by ½% point (quarter on quarter). Excluding this factor, the economy maintained the growth rate of the first quarter. Thanks to the tax cuts worth EUR 5 billion, growth in 2016 could be slightly higher than this year. We have therefore increased our GDP estimate to 2½%. In view of the recent improvements in the labour market and the (still) favourable outlook for the economy, we have pared down our unemployment estimates for this and next year. We have somewhat lowered our inflation forecast for 2016. This is because of the reduced oil price projection for 2016 and our slightly altered dollar forecast. Nevertheless, average inflation next year will work out higher than this year. One reason is the continued strengthening of the dollar, another is the still slightly higher oil price than in 2015.
2
Dutch Economy in Focus - Economy is catching up - 11 September 2015
Economy is catching up Nico Klene +31 20 628 4204
The Dutch economy is doing well and is growing a lot faster than last year. And the pace of growth could be even higher
GDP growth has accelerated
next year thanks to the tax cuts. However, disappointing developments in the emerging economies around the world
% yoy
pose a risk for the further recovery. 3
GDP growth gathering pace …
2
After two years of contraction, the economy expanded by 1%
1
last year. This 1% is an average for full-year 2014. In the final quarter of that year, however, the year-on-year growth rate was clearly higher at 1½%. And in the first half of this year
0 -1
gross domestic product (GDP) gathered further pace,
-2
accelerating to an average of 2¼% yoy. This growth is also
-3 10
more broadly based than before. Apart from exports, which
11
12
continued to increase in the recent lean years, investment and subsequently consumption have also been driving GDP growth
13
Netherlands
14
15
Eurozone
Source: Thomson Reuters Datastream
for some time now. A glance at the various sectors confirms this picture of a broad-based recovery: all market sectors are posting positive figures, and have been doing so since last year. Construction, still the weakest sector only a few years
GDP undershoots potential growth
ago, actually will see production surge by some 4½% this year. … after seven lean years
EUR billion
190
The crisis caused the economy to perform below par during a
180
number of years: actual production was lower than 'potential'
170
production. It was only in the second quarter of this year that
160
the economy regained the volume of the second quarter of 2008, just before the Great Recession. Under ‘normal’
150
conditions GDP would have expanded by 11% to 12% in those
140
seven years.
130 00
03
must outpace its potential growth rate for a considerable period
06
09
Potential
To make up at least part of the missed growth, the economy
12
15
Actual
Source: Statistics Netherlands and own calculation
of time. This potential annual growth rate is estimated at (or just under) 1½%. Historically, economies that have underperformed for several years due to an dip tend to catch up at least part of the lost ground. Whether that will happen
Broad-based pick-up in economic activity
this time remains to be seen. The past seven years have left
Contribution to GDP growth in pct point
the economy with a mountain to climb. 2,5
Indeed, higher than potential growth would appear to be on the
1,5
cards both this and next year. And the actual performance is even better, as economic growth is being depressed by the
Exports Business investment
0,5
reduced gas extraction in Groningen.1 Last year, this dampened growth by about ½% point (compared to former gas production levels). And growth is expected to be tempered by
Private consumption
-0,5
Housing investment Government spending
-1,5
GDP
a further ½% point this year. -2,5 11
12
13
14
15
16
Source: CPB Netherlands Bureau for Economic Policy Analysis; 2015 and 2016 estimates ABN AMRO Bank
Persistent earthquakes due to gas extraction in that part of the Netherlands compelled the government to significantly scale down the gas extraction activities. 1
3
Dutch Economy in Focus - Economy is catching up - 11 September 2015
Second-quarter growth stronger than data suggest Lower gas extraction in Groningen put a strong drag on GDP
Growth with and without minerals extraction
growth in the second quarter. Provisional figures suggest the economy grew by 0.1% compared to the previous quarter (qoq), considerably less than the 0.6% recorded in the first
% qoq
1,0
quarter. This looks like a growth deceleration. A closer look at the figures, however, reveals that second-quarter (qoq) GDP
0,5
growth was depressed by about 0.5% point due to the almost 20% reduction in minerals extraction (read: gas extraction). So
0,0
it is fair to say that the economy retained its momentum in the second quarter.
-0,5
The spring quarter saw further advances in household
-1,0 12
consumption, private investment and exports. Particularly
13
15
Excl. minerals extraction
notable was the 7% qoq acceleration in residential investment. After four quarters of consecutive increases, these investments
14 Actual
Source: Thomson Reuters Datastream and own calculation
were 30% above the second-quarter level of 2014. The rise in business investment lagged well behind this figure. As imports also quickened considerably, GDP growth remained limited to only 0.1% in Q2.
Housing investment rebounds strongly after deep dip % yoy
Housing market no longer a growth inhibitor The housing market is doing better than expected. This applies both to new-build housing and renovations. New-build sales jumped sharply, advancing 47% in the first seven months compared to same period of 2014. Existing property sales are also still on the rise: +21% yoy. Finally, the number of issued new-build permits doubled in the second quarter compared to
30 20 10 0 -10 -20
a year earlier.
-30 08
However, certain criteria for the housing market were tightened
09
10
11
12
13
14
15
2
up effective from July. This may have prompted many buyers to bring forward their home purchase plans. House prices also
Source: Thomson Reuters Datastream
remain on a slow but steady upward trajectory. Average prices have climbed by 2½% yoy in the first seven months. We think
Further increase in house sales and prices
that the average price increase may even be slightly higher this year, at about 3%. A comparable increase is foreseen for 2016.
Index
x1000
115
220
Outlook is positive, but ‌ The outlook for the Dutch economy is positive. This is based
200 105 180
on our upbeat expectations for the US and eurozone economies. We foresee slightly higher growth rates for these
95
160
regions in the second half compared to the first six months. Both regions are benefiting from the oil price slump, while the
140 85 120
eurozone (including the Dutch economy), is also receiving impulses from the cheaper euro and the decline in interest rates.
75
100 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 House prices (index; lhs)
Source: Thomson Reuters Datastream
The NHG (National Mortgage Guarantee) threshold has been reduced further and the banks are required to apply new stricter Nibud income criteria for mortgages. 2
Transactions (12-m total x1000; rhs)
4
Dutch Economy in Focus - Economy is catching up - 11 September 2015
An additional factor is that the Dutch cabinet has planned
Mood indicators on upward trend
substantial tax cuts worth EUR 5 billion for next year (0.7% of GDP). These tax cuts have now been included in our estimates, leading to an upward revision of our GDP forecast
Index
10
118
5
109
0
100
-5
91
-10
82
-15
73
… emerging countries could throw a spanner in the works
-20
64
The economic mood indicators brightened further in the
-25
for 2016 by ¼% point to 2½%. Consumption in particular will receive a boost from the lower tax burden. The growth in expenditures could run up to almost 2% next year. The last time we saw a similar figure was in 2007.
55 08
summer, pointing to sustained and possibly even slightly
09
11
12
13
14
15
Producer confidence manufacturing (lhs) Economic Sentiment indicator (rhs)
stronger economic growth. Admittedly, the figures retreated somewhat in September, but this was probably due to turbulence in the financial markets over concerns about the
10
Source: Thomson Reuters Datastream
Chinese economy. Several other emerging economies are also slowing down.3 Our baseline scenario does not assume a hard landing of the Chinese economy, but the risk of setbacks leading to lower economic growth has increased.
More jobs – fewer unemployed x1000
Unemployment is falling steadily Thanks to the renewed economic growth, which started in the summer of 2013, employment has been climbing since the spring of 2014. Due to the rising number of jobs, unemployment fell further in the first seven months of this year. We expect to see unemployment continuing to follow a gradual downward path. However, GDP is currently growing at a more moderate rate than in earlier recovery periods. This possibly explains the slower decline in unemployment.
8500
750
8400
650
8300
550
8200
450
8100
350
8000
250 08
10
11
12
13
14
Employed labour force (lhs)
The signs of a further upturn in the labour market are encouraging. The number of temporary employment hours
09
15
Unemployed (rhs)
Source: Thomson Reuters Datastream
showed its ninth consecutive rise in the second quarter (+3.2% qoq). The year-on-year improvement has now risen to +9%. The second quarter also saw the number of job vacancies growing for the ninth time in a row. Once again, the increase
Substantial rise in temporary employment hours
was 5% qoq (20% yoy). Moreover, the numbers of requested and granted dismissals are continuing to shrink. And the vacancy indicator of Statistics Netherlands has recovered in the past months after the temporary dip in April-May.
% yoy
15 10 5
In view of the recent labour market developments and the (still) bright outlook for the economy, we have slightly reduced our unemployment estimates for this and next year.
0 -5 -10 -15 08
09
10
Source: Statistics Netherlands
3
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11
12
13
14
15
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Dutch Economy in Focus - Economy is catching up - 11 September 2015
Inflation up Inflation has crept gradually higher this year. After falling to 0%
Inflation up
in January (partly due to the slump in energy prices), inflation rose to around 1.0%, before it eased again to 0.8% in August. The increase since January is partly attributable to the fact that
% yoy
4
energy prices are no longer falling as sharply and are therefore putting less of a drag on inflation. However, price rises of other
3
product groups are also up. This may have to do with the economic recovery alleviating the deflationary pressure on
2
prices. A further factor is the more expensive dollar. All in all, average inflation will be slightly higher this year than we
1
originally thought. 0
Average inflation next year will work out higher than this year.
08
09
10
12
Headline
One reason is that the continued strengthening of the dollar will make imports more expensive. The oil price will also gain a
11
13
14
15
Core inflation
Source: Thomson Reuters Datastream
little ground. The downward effect of the initial fall in oil prices will be eliminated and then make way for a moderate upward effect. The sustained economic growth can also help to fan inflation. Despite this, we have somewhat lowered our inflation forecast for 2016. This is because of the reduced estimate of
Key figures of Dutch economy
the oil price increase in 2016 and our slightly adjusted forecast
2013
for the dollar rate, which may not reach parity until the end of this year.
2014
2015
2016
% changes
GDP
-0.4
1.0
2.3
2.5
-1.4
0.0
1.7
1.9
Government consumption
0.2
0.3
-0.1
0.6
Investment
-4.5
3.5
7.6
4.4
Exports
2.4
4.0
4.5
5.0
Imports
1.1
4.0
4.5
6.0
Consumer prices (CPI)
2.5
1.0
0.8
1.5
Consumer prices (HICP)
2.6
0.3
0.4
1.4
Wages
1.3
1.1
1.3
1.7
Private consumption
Levels Unemployment (% labour force)
7.3
7.4
6.9
6.4
Current account balance (% GDP)
11.0
10.8
11.1
10.6
Budget balance (% GDP)
-2.4
-2.4
-2.0
-1.5
Revised figures are in italics. Forecasts: ABN AMRO Group Economics
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Dutch Economy in Focus - Economy is catching up - 11 September 2015
APPENDIX 1. MACRO INDICATORS
Key figures for the Dutch economy 2012
2013
2014
% changes
2014
2015
Q4
Q1
Q2
Q3 qoq
2015f
2016f
qoq
qoq
qoq
-1.1
-0.4
1.0
0.9
0.6
0.1
2.3
2.5
Private consumption
-1.2
-1.4
0.0
0.8
0.6
0.2
1.7
1.9
Government consumption
-1.3
0.2
0.3
-0.6
0.4
0.0
-0.1
0.6
Investment
-6.3
-4.5
3.5
3.6
2.4
2.1
7.6
4.4
Exports
3.8
2.4
4.0
0.9
1.1
1.0
4.5
5.0
Imports
2.7
1.1
4.0
0.7
0.3
2.3
4.5
6.0
Consumer prices (CPI - % yoy)
2.5
2.5
1.0
0.9
0.2
0.9
0.8 (Aug)
0.8
1.5
Harmonised consumer prices (HICP - % yoy)
2.8
2.6
0.3
0.2
-0.5
0.4
0.4 (Aug)
0.4
1.4
Wages private sector (% yoy)
1.6
1.3
1.1
1.2
1.2
1.2
1.4 (Aug)
1.3
1.7
Unemployment (% labour force)
5.8
7.3
7.4
7.1
7.1
6.9
6.8 (Jul)
6.9
6.4
Producer confidence manufacturing (eop)
-5.6
0.1
3.4
3.4
1.4
4.6
3.5 (Aug)
Consumer confidence (eop)
-39
-17
-7
-7
2
6
6 (Aug)
2013
2014
GDP
Levels
Forecasts: ABN AMRO Group Economics
Key figures international economy 2012
% changes
2014
2015
Q4
Q1
Q2
Q3
qoq
qoq
qoq
qoq
2015f
2016f
GDP eurozone
-0.8
-0.2
0.9
0.4
0.5
0.4
1.6
2.2
GDP Germany
0.6
0.4
1.6
0.6
0.3
0.4
1.8
2.4
GDP United States
2.2
1.5
2.4
0.5
0.2
0.9
2.7
3.1
Levels
USD per EUR (eop)
1.32
1.38
1.21
1.21
1.07
1.11
1.12 (Aug)
1.00
1.10
3m Euribor (%. eop)
0.2
0.3
0.1
0.1
0.0
0.0
0.0 (Aug)
0.0
0.0
10y Bund Germany (%. eop)
1.3
1.9
0.5
0.5
0.2
0.8
0.8 (Aug)
0.5
1.4
10y State. Netherlands (%. eop)
1.5
2.2
0.7
0.7
0.3
1.0
1.0 (Aug)
0.6
1.5
111.7
108.7
98.9
76.1
53.9
61.9
46.7 (Aug)
60
65
Oil price Brent (USD/barrel. average) Forecasts: ABN AMRO Group Economics
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Dutch Economy in Focus - Economy is catching up - 11 September 2015
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