The last year has been a difficult one for the economy of the Netherlands as it has seen its economy shrink. Indeed the economic performance has been more like an economy of the Euro area periphery than a core nation at the heart of the Euro project. Back on the 15th of August I pointed out that the bursting house price bubble that was adversely affecting domestic demand in the Netherlands would look rather familiar to citizens of Ireland and Spain. They might reasonably wonder how hypocritical some Dutch politician’s had been in their criticisms of what had happened in the Euro area periphery when they too had inflated a housing boom and now bust.
The Netherlands will be hoping that the recent improvements in the Euro area economy will carry through to it particularly as it is a trading nation. However this week’s latest update on economic growth (Gross Domestic Product) in the Euro area did show dips in the recorded annual contraction to -0.6% and indeed -1.2% in the first quarter. That did not come out to much of a fanfare and is not to be found in the Eurostat news section inspite of being released on Tuesday.
The Dutch economy
This has travelled a path which the latest report from Statistics Netherlands summarises thus.
Consumer spending has been in decline continuously for twenty-four months now.
That is not entirely an auspicous background to its update to say the least.
Household spending on goods and services was 2.2 percent down in July 2013 from July 2012. The contraction was somewhat smaller than in June (2.6 percent).
Indeed there is a section consistent with the problems in the housing market.
Household spending on durable goods fell by 7.5 percent in July versus a 9.8 percent downturn in June.
The prospects going forwards do not look much brighter either.
September’s Household Consumption radar shows that circumstances for consumption were somewhat more unfavourable than in August. According to the Consumption Radar, conditions for Dutch household consumption are not very promising.
The consumer confidence reading was -33 in September which is the sort of level seen at the worst when the credit crunch hit in 2008/09 but not the worst in this phase. Also in case you are wondering yes it can and indeed has had a positive reading!
Also the numbers for car registrations in August were unlikely to help as they were 13% lower than a year before although that was better than the 32% decline of 2013 so far.
The consumer credit numbers have now been updated for August and as there are loads of different measures let me summarise by saying that the overall stock is declining and new lending looks weak.
What about production?
This too has been on a disppointing path which was further confirmed only on Wednesday.
The average daily output generated by Dutch manufacturing industry in August 2013 was 2.3 percent down from August 2012. Manufacturing output has been down from one year previously for eight months in a row now. The decline in August was more substantial than in the previous four months of 2013.
I think they mean preceding in the last sentence as I doubt the Dutch statisticians really think that there are only 4 months preceding August in 2013! Also I note that the falls were widespread.
In almost all sectors of manufacturing industry, output was down in August 2013 from August last year
The underlying pattern if we set 2010 as our benchmark of 100 was an initial fall to 95 then a rally to 105 and now a dip to 98.5 (unadjusted) or 101.9 seasonally adjusted.
This type of situation for August has become familiar as we have had updates from different countries this week. The reports of an economic improvement this summer seem to have missed out industrial production in more than a few places. Those who read my update on business surveys and output numbers on the 9th of this month might note that Italy was yet another case of survey optimism but falling output in August.
This has been a Dutch problem as the annual inflation rate has been substantially above that of the Euro area average for a while now. However like in many of its Euro area partners it is now dipping.
the inflation rate fell to 2.4 percent in September. The rate has not been this low during the past twelve months. In August, consumer prices were 2.8 percent up from one year previously.
I mentioned yesterday that petrol prices at the pump had fallen and indeed it was a good month for what are officially called “non-core” items or essentials to you and me.
Price developments of food products also brought down inflation.
So it was a better month for the Dutch consumer which on the basis of the numbers observed above is sorely needed.
What about economic growth?
This was revised upwards although it remained in negative territory.
The Dutch economy contracted 0.1 percent in the second quarter of 2013 relative to the first quarter. When the first estimate was published on 14 August, the contraction was 0.2 percent.
There is a nuance to this in that over this period the measure of inflation called the implied deflator fell which flatters the numbers. This was consistent with the consumer price level which also fell but there is a catch as the consumer price level rose in the third quarter. So it will have found it tougher going and the year on year comparison remains weak.
The economy shrank by 1.7 percent in the second quarter relative to the second quarter of 2012. According to the first estimate, the economy slumped by 1.8 percent.
What about unemployment?
There is a nuanced picture here so let us start with some better news.
seasonally adjusted unemployment fell to 683 thousand in August, i.e.8.6 percent of the labour force.
So some relief although care is needed as this is also true.
The average monthly increase over the last three months was 8 thousand.
If we compare to August 2012 then unemployment has risen for 571,000 then to 684,000 now and the unemployment rate has risen from 6.5% to 8.6%. So whilst a dip is welcome we need to see some more before we can say that the trend has actually changed.
There has been an improvement here which was particularly marked in July and the annual rate of fall has now reduced to 4.4% as of August. The underlying situation remains one of considerable falls though.
Prices of existing owner-occupied dwellings were at the same level in August 2013 as in early 2003.They were 20.0 percent below the record level registered in August 2008.
I did note that there was a rise in rents in July and I am not an expert in the Dutch rental market but it did make me wonder if this was an influence on the recorded bounceback.
Residential property rents were raised by an average of 4.7 percent in July 2013, the most substantial increase since 1994
Also I noted this on Bloomberg from Rabobank and under a headline telling us that house prices were undervalued I spotted this.
Prices will probably continue to decline for the rest of this year and into next as consumers remain concerned about unemployment and as the Dutch struggle to adjust to structurally lower house prices, Stegeman said. The market may stabilize and recover from 2015 or 2014 at the earliest, he said.
As the biggest mortgage lender you would expect them to be as optimistic as they feel they can get away with!
It’s the debt stupid!
International comparisons of debt levels are always fraught with danger but according to Statistics Netherlands this is the state of play.
The total debt of households and non-financial companies amounted to more than 1.3 trillion euros by the end of June, i.e. 223.7 percent of the GDP. This so-called private debt-to-GDP ratio was marginally below the level of the preceding quarter (224.0 percent).
Those in Italy, Greece and Spain might like to remind Dutch politician’s of this the next time they talk of others going on debt binges.
In the second quarter, the household debt-to-GDP ratio was marginally reduced. By the end of June, the total debt of Dutch households was 127.4 percent of GDP, versus 127.8 percent by the end of March.
Looking at the overall picture we see that the summer has seen a reduction in the rate of decline in the economy of the Netherlands. However can this be sustained? This is brought into focus by looking at a familiar theme of these times. From Statistics Netherlands via Google Translate.
In the third quarter of 2013, the CAO wages increased by 1.2 percent compared with a year earlier. This increase is slightly less than in the previous quarters. Moreover, the increase is still well below inflation, which was 2.8 percent in the third quarter. The contractual wage expenses in the third quarter by 1.7 percent.
So we see yet another country with falling real wages and we note that whilst inflation is dipping so are wages. To the question how long has this been going on? We see this.
Inflation in the last three years, twice as high as wages
At the end of the third quarter of 2013 consumer prices were 8.1 percent higher than three years earlier. Negotiated wages rose by 3.9 percent in that period.
Until we see a change in that relationship then the economy of the Netherlands will struggle to make any sustained progress.
Oh and if we compare wages to rents we see that the rentier society seems to be on the march in the Netherlands too.