This week has seen a lot of concentration on a small island in the Mediterranean which has moved to a polar extreme of the Euro project. However we can learn a lot more by moving towards the other polar extreme and looking at a country which is on the other side of the Euro balance sheet. The Netherlands is one of the countries which is at the heart of the Euro project and as one of the few remaining AAA rated nations is definitely a creditor nation to the debtor status of Cyprus.
However I have established a theme in recent months that the economy of the Netherlands is definitely struggling. On the 22nd of February I analysed the position and came to this conclusion.
But when we look at demand we see weak retail sales accompanied by even weaker consumer confidence and a house price fall which is on the edge of being called a plunge. If we consider the boost to consumption that many places saw from such factors as equity release from rising house price then we have to wonder what the effect of them falling will be.
From the point of view of the Euro project this of course means that it has problems at both ends of the spectrum.
The Dutch economy
We have been updated today by Netherlands Statistics on this subject.
Prices of existing owner-occupied dwellings were on average 8.3 percent lower in February 2013 than in February 2012
We can also take some perspective from these numbers.
Prices of existing owner-occupied dwellings in February 2013 were at the same level as mid-2003. They were more than 18 percent down from August 2008, when house prices reached a record high
However February was an improvement on January’s sharp fall and saw a 1.2% month on month rise,which interestingly the statistics service does not emphasise which I suspect is because it is worried about the effect of a change in mortgage rules. But we do know that compared to an index based at 100 in 2010 the underlying index is at 87.1.
For those wondering about the ownership to renting balance in the Netherlands then the number of owner-occupiers was 59% in 2012.
What about consumer confidence?
We see a similar pattern here of a marginal improvement in a deeply depressed series. You can choose here between a marginal improvement or the second lowest reading ever as both are true.
The consumer confidence indicator climbed 3 points to -41, but confidence remains low. With -44, the indicator hit the lowest level ever in February this year.
This is confirmed by the economic climate indicator.
The component indicator economic climate climbed 2 points to -61.
So there you have it marginal improvements in measures near to their all time lows. So things are getting worse more slowly!
Retail Sales are very weak
You may spot the effort here to disguise reality which I have responded too by highlighting the relevant section.
The latest figures show that retail turnover was 0.5 percent down in January 2013 from January 2012. Retail prices were 2.6 percent higher, volume shrank by 3 percent.
Sneaky eh? Also as we progress on we see that in fact this may still have some sugar coating.
The shopping-day pattern was more favourable than in January last year. The positive effect thereof on total retail turnover is estimated at approximately 2 percent.
So we face the possibility of volumes being 5% lower than the year before on a like for like basis. This is a number we associate with the periphery of the Euro area not its heart. Indeed nor is an underlying index for retail trade which is now at 88.3 where 2010=100. As January is a weak month for retail sales I looked back to January 2010 for the best comparison we might get and the number is some 5% lower now.
What about output?
We see that this turned further down in January.
The average daily output of Dutch manufacturing industry was 3 percent down in January 2013 from January 2012
A fairly substantial fall which was caused mostly by the petroleum,chemical,rubber and plastic component of the measure. We also see that the underlying index where 2010=100 is now at 98.5. So we conclude that the export success that the Netherlands continues to have is unable now to offset the domestic weakness.
Indeed if we look deeper into the export performance we see a troubling issue which has been discussed on here before
Re-exports accounted for approximately two thirds of the 22 billion value growth of exports.
Goods transported via the Netherlands, which are temporarily owned by a resident of the Netherlands, without any significant industrial processing.
Number of bankruptcies skyrocketing
This is the headline from the statistics service which seems less than reassuring so let us take a look.
In February this year, 755 businesses and institutions (excluding one-man businesses) in the Netherlands were declared bankrupt. This is the highest monthly number ever recorded. In January, the number of bankruptcies was also high (734).
They point out that the three month moving average is more reliable which I guess is fair even though if you have two high readings then this can hardly be a surprise.
The three-month moving average stood at 680 in February, i.e. the highest number since the beginning of the time series in 1981
What about construction?
The bad news just keeps on coming in this sector.
The construction sector suffered most from the economic recession in 2012. Output fell by more than 8 percent, turnover by 7 percent
One thing does lead to another.
Residential and non-residential building was hit hardest by the sustained slump on the property market
What about prospects for 2013?
Residential and non-residential building was hit hardest by the sustained slump on the property market……..Architectural firms also received fewer orders for new construction projects
Actually orders for architectural firms took quite a lurch downwards in the last quarter of 2012.
So we conclude that with a fall of 33% in the number of building permits issued the Dutch construction sector looks set for another decline in 2013. As this is the sector that usually leads in an economic recovery there seems little hope here.
With a little help from my friends?
With apologies to the Beatles we can also see that prospects in the Euro area overall are not good right now which will have its impact on the Netherlands ability to export. From Markit.
The flash PMI data suggest that the Eurozone business environment deteriorated at a quickening rate in March
So the promised recovery has faded and turned downwards and even more ominously.
Instead of the eurozone economy stabilising in the second quarter, as many – including the ECB – have been hoping to see, the downturn could therefore intensify in coming months
What about the banking sector?
As we review weak housing markets,consumption and manufacturing we see that many of the domestic customers of Dutch banks must be struggling. We also know that Dutch banks have had plenty of problems as it is. Indeed this phrase from the annual report of the Dutch central bank seems rather ominous if we translate the euphemisms.
Our economy is living proof that financial distortions in the past will take their toll sooner or later.
Indeed it does not seem optimistic at all.
The current poor growth rates find their origins to a large degree in the 1990s, when the economy expanded rapidly, thanks in part to home equity releases following a spectacular rise in house prices, the stock market boom and inadequate pension contributions. Now that house prices have gone down, pension contributions have gone up, and debt has to be reduced to manageable proportions, we are facing the downside: negative wealth and income effects that dampen consumption and economic activity.
Pension funds will not help
I think that this statement speaks for itself.
Insufficient recovery since the outbreak of the crisis has compelled 68 pension funds to curtail accrued pension rights in April 2013. (Out of 381).
I have emphasised the economic weakness in the Netherlands today as it is the other side of the balance sheet from Cyprus. If we look at the position we see that this AAA rated nation is some 5.6% of the backing of the European Central Bank and slightly more of the Euro area “rescue” vehicles due to some nations “stepping out”. So in addition to the problems that this economic weakness creates for the Netherlands we see that it also leads to an atmosphere which creates this.
The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013.
Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.
As the group Hard-Fi put it