How will the Euro respond if the Dutch economy continues its decline?

2013 has started with a fair degree of what I have described as Europhoria where improvements in some financial markets are lauded whilst continuing and indeed deteriorating problems in real economies are forgotten. Indeed the rally in the exchange rate of the Euro which I discussed yesterday must be something that is reviewed grimly by many exporters in the region.

Whilst this perception has gathered strength there are factors developing which look very likely to puncture this Europhoria. One example of this can be seen in what is one of the core Euro nations which is the Netherlands. Back on the 20th of December  I pointed out how weak her third quarter of 2012 has been.

the Dutch economy shrank by 1.1 percent in the third quarter of 2012 compared with the second quarter. In the first two quarters of the year, the economy grew slightly, by 0.1 percent

This has since been revised down to a 0.9% fall but even so her economy was 1.5% smaller than it had been the year before. So is some of the rot spreading to the core?


This is becoming an ever more important issue for the Euro area as its apparently ininexorable rise has seen the unemployment rate reach 11.8% overall with Greece now being the peak at 26.8%. The core nations have are a downwards influence on the average but as today’s figures show it is rising fast in one of them at least.

The seasonally adjusted unemployment rate rose in December 2012 increased by 19,000, reaching 571,000 people……Unemployment rose to 7.2 percent in December. A month before, 7.0 percent of the workforce was unemployed.

If we look back for some more perspective we see that this has in fact been developing for a while.

Unemployment has risen almost continuously since June 2011. When the unemployment rate was 5.0 percent.

We  now know that unemployment rose by 116,000 in the Netherlands in 2012. Also we got a clue as to where at least some of it was coming from.

In construction, the number of people claiming unemployment benefit in one year by more than 70 percent.

We can also look at the employment figures for further insight. This is because unemployment figures tell us what has happened but trends in employment also give us a clue to what is likely to happen.

If we do this we see that over the past year (to December) employment in the Netherlands has fallen by 61,000 to 7,350,000. This has happened in spite of the fact that the labour force has risen by 82,000 to 7,894,000. So overall there has been a considerable deterioration and it does suggest that more economic weakness is on its way. if we go back to the middle of 2012 the level of employment was still rising so the second-half of 2012 saw quite an adverse turn in the trend.

Retail Sales are troubled too

We get the idea from the Statistics Netherlands headline.

Volume of retail sales declines dramatically

As we look into the numbers we see this.

Retail sales were 1.5 percent down in November 2012 from November 2011. Retail prices rose by 2.6 percent, retail volume shrank by 4 percent.

Even worse the shopping day pattern was more favourable in November 2012 by an estimated 2% so if we allow for that we get a 6% year on year fall. As food sales held up relatively well (+1% year on year) we draw the conclusion that non-food sales were particularly badly affected.

Real Wages

Another driver of the credit crunch has been the behaviour of real wages. As you can see they have been falling in the Netherlands for a while now.

Collectively negotiated (CAO) wages rose by 1.6 percent last year, i.e. 0.5 percentage points more than in 2011. The inflation rate over 2012 was 2.5 percent and has been above the increase in collectively agreed wages for the past thirty months.

At least that might improve competitiveness you might think. But there were moves in the opposite direction.

 The employers’ contribution to the unemployment insurance scheme was raised from 4.20 to 4.55 percent in 2012……….(and there were also) higher contributions to the National Civil Pension Fund (ABP).

House prices

These have been falling in 2012 which continues a trend from 2009.

Prices of existing owner-occupied dwellings sold in November 2012 were on average 6.8 percent lower than in November 2011

prices of existing owner-occupied dwellings sold in November 2012 were at the same level as in early 2004. They were more than 16 percent lower than in August 2008, when house prices reached a record high.

However November prices were similar to those of the last three months so we await to see if this is a stop on the way down or a holding pattern.

Manufacturing production

The same numbers can be looked at two ways.

In November 2012, the average daily output of the Dutch manufacturing industry was 0.7 percent up on November 2011

After correction for seasonal variation and the number of working days, manufacturing output in the period October-November was down by 0.8 percent on the period August-September.

In essence Dutch manufacturing has been at a similar level for the last two years.


This is a bright spot for the Dutch economy.

The volume of exports of goods grew by 5 percent in November relative to twelve months previously

She has a comfortable trade surplus and if you look at the import levels is also being a “good European”.

The value of exported goods totalled 38.1 billion euro, i.e. 6.5 percent up from twelve months previously. The value of imported goods rose by nearly 7 percent to 33.8 billion euro, resulting in a trade surplus of 4.3 billion euro.

This remains a good performance and to do so in a difficult 2012 makes it in fact a very good performance. Although on the exports radar there is a sign of possible trouble ahead.

The real effective exchange rate was the only indicator to show deterioration.

It is getting a lot worse as I type this. The Euro has risen to 1.336 versus the US Dollar and has pushed through 1.20 versus the pound. it has also risen to above 119 versus the Yen as yesterdays Yen rally looks now like a shower on a summers day.

The European Central Banks effective or trade-weighted measure was 94.41 in late July and as of last night was 100.17 and rising if so far today is any guide.


So we see that there are more than a few challenges for the Dutch economy as we move further into 2013. In the labour market she has a toxic mix of falling employment and rising unemployment and the drop in real wages will ripple out further into retail sales. Whilst improved monetary conditions may be a stabilising influence on her housing market we see that her labour market remains a downwards one. Against this she has continued a good export performance although it now has to face a higher and hence less competitive exchange rate.

As so often these days on the other side of the coin are the financial markets. We have already looked at the Euro but the government bond market remains at a high level too albeit that recent falls elsewhere have been followed. For example earlier this month a three year bond was issued with a zero coupon and her benchmark ten-year is at 1.75%. If we look at her equity market we see that the AEX index is up 10% over the last year as an equity market rally coincides yet again with underlying economic weakness. Do they know something that we don’t? Or is it the other way around?

This entry was posted in Euro zone Crisis, GDP, General Economics, House Prices, Inflation, Stagflation and tagged , , , . Bookmark the permalink.
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  • John

    Thanks Shaun. The financial indicators do seem to be a bit contradictory. They have been so in various countries in the EZ for some time; it seems to be a bit of a random walk, aimless and not really improving. For me the one constant that seems to be more generally true now in many countries is the level of unemployment. Personally, I don’t we how there can be a real recovery until unemployment has fallen and the consumer demand has started to rise, but without debt being the main cause. Perhaps a difficult trick for politicians to engineer now. The figures you quote do make me concerned that the so called strong, healthy North, is actually really quite vulnerable and these are some initial signs.

  • forbin

    Hello Shaun,

    Another plank working loose in the “leaky unstable” lifeboat me thinks….

    in other banking news

    Well that just sums it up – these little crooks get their neck felt but the managers at these banks walked off with bonuses!!

    look at what the judge said about the banks management – nothing changed since the bankers went bust – look at the dates on the fraud !

    can happen – will happen again – banks don’t want to change

    who said they don’t run the country ?


  • pavlaki

    I am glad that you focus on events in Europe as I believe that what happens there is what will drive recovery / further decline in the rest of the world. Quite apart from the direct trading effects, Europe has a huge impact on global confidence and the willingness to invest. for the future. Until Europe is settled I fear we will not see improvement at home or elsewhere. And I don’t see Europe settled anytime soon. We are enjoying a lull in the crisis which has been achieved through statements alone. Eventually markets will want to see the colour of their money and that’s where things may get interesting.

  • Anonymous

    Everybody involved in defrauding the bank went to jail. Nice precedent – it would be good to see all involved in the LIBOR scam going to jail too.

  • Rods

    Hi Shaun,

    The Eurozone economies seems to be a bit like an Australian colander with the North draining last!

    I saw a US bank’s 2013 and beyond prediction at Christmas and this showed most of the world recovering in 2013, except for Western Europe and especially the Eurozone, where they saw a prolonged recession with the EU percentage of world trade steadily declining for all of this decade. They gave the impression that Europe is turning into a self-inflicted irritable sideshow. So I think there is going to be increasing impatience from around the world on the EU dragging down the recovery.

    The UK’s economic fortunes I think will depend upon us getting on our bikes and trading with the rest of the world.

    Still look on the bright side King Canute’s Spanish descendants are alive and well in the EU parliament. A Spanish socialist MEP has introduced a motion that has been passed for consideration by the EU commission to be turned into a directive. If a company of over 100 employees makes somebody redundant they must support them with retraining, counselling and help with job applications until they can find another job. Just what many EU industries that are in trouble need, more unproductive costs and with unemployment going up, no jobs for former-employees. In Spain many companies that are in trouble, have gone under on the costs of restructuring, where they must give 45 days redundancy pay for every years service and they don’t want the risks and costs of taking somebody on if they are an growing company.

    The USSR failed economically due to unelected, unaccountable, out-of-touch leaders and the EU or EUSSR if political integration gets that far will go the same way. Unfortunately, if the history of the former USSR is anything to go by, most EU countries are going to get very, very poor before this happens and will take many decades to recover.

  • Anonymous

    Hi Guys
    It seems you only go to jail is you defraud a bank, if a bank defrauds you apparently no-one is actually responsible. It makes us look ever more like a “bankocracy”…

  • Anonymous

    The Euro rise carried on today against £ pushing through 1.20 and those numbers were in use for the Yen too as it went through 120 Yen. The ECB’s effective exchange rate is now 100.7.

    Such things have a lagged effect but they are a tightening of monetary policy whilst the mainstream media discusses easier monetary policy. Remember when we were promised that “growth,growth,growth” would be the strategy?

  • Anonymous

    Hi Rods
    It is an irony is it not when we see so much talk about and promises of more flexible labour markets (in Spain for example..) but there is still plenty of pressure the other way. In reality firms would carry on for a bit then perhaps fold completely…..