Yesterday saw the latest report for economic growth for the Euro area from Eurostat and it showed that the eighteen months of recession had finally ended.
GDP rose by 0.3% in both the euro area (EA17) and the EU27 during the second quarter of 2013
The national breakdown of this varied from the sublime where Germany not only grew at 0.7% but did so via domestic consumption, to the ridiculous where Portugal apparently grew by 1.1% (partly due to the effect on exports of Easter). Also for perspective we need to note this fact.
Compared with the same quarter of the previous year, seasonally adjusted GDP fell by 0.7% in the euro area
Bringing up the back of the pack was a country whose economic problems have been a theme of this blog for a while.
According to the first estimate conducted by Statistics Netherlands, the Dutch economy shrank 0.2 percent in the second quarter of 2013 compared to the first quarter. This is the fourth quarter in a row showing economic decline, although with each quarter the decline became less severe. The economy contracted 1.8 percent relative to the second quarter of 2012.
So the economy of the Netherlands continues on its troubled way and the recorded improvements around the Euro area in the second quarter of 2013 were unable to lift it out of its recession. If we look into the detail we find some familiar features.
Domestic Demand is falling
In the second quarter, household consumption on goods and services was 2.4 percent below the level of one year previously. Household consumption has been in a downward spiral for more than two years now. Dutch consumers spend less money on durable goods like cars, clothes and furniture, but also cut down on food, drinks and tobacco.
A driver of this has been retail sales as this is what happened in the second quarter there.
retail volume shrank by nearly 4 percent.
Investment is being hammered
Fixed capital formation in the second quarter was 9.4 percent below the level of one year previously. This is the sixth consecutive quarter showing a downward trend, although the decline is smaller than in the first quarter
Government Austerity is impacting too
Government consumption fell by 0.5 percent as a result of a spending cut on public administration
Those from the peripheral Euro area nations who have observed Dutch politicians insisting on further austerity in their countries may be grimly smiling at this point. The biter bit?
Even Exports fell
Exports of goods and services decreased by 0.3 percent in the second quarter relative to twelve months previously.
Although in the often distorted world of Gross Domestic Product statistics this can be a gain. How?
Imports were 1.7 percent below the level of one year previously.
Under the logic applied here GDP rises in spite of the fact that external demand has fallen because a measure of domestic demand has fallen even faster. Or up is again the new down!
As Bruce Hornsby put it.
That’s just the way it is
Some things will never change
That’s just the way it is
But don’t you believe them
For once the weather was a positive influence
Consumers spent more on natural gas than last year due to the relatively cold weather conditions in spring.
UK readers may find this concept difficult as most versions of the weather take the blame for economic underperformance there! Although today’s UK retail sales numbers do appear to have benefited from July’s heatwave (barbeques?)
The Labour Market
This has proven to be a sign of what is to come in the credit crunch era and it is not that hopeful for the Netherlands.
In the second quarter of this year, the number of employee jobs was 147 thousand down from one year previously. With 1.9 per cent, this is the biggest drop since the start of the quarterly series in 1995. Employment was down across all sectors.
So according to these numbers not only is there a deterioration but it is accelerating. Also there are fewer and fewer jobs on offer.
Adjusted for seasonal variation, there were 91 thousand unfilled vacancies at the end of June, a reduction by 6 thousand relative to the first quarter, which means that the downward trend continues…. the number of vacancies has reached the lowest level of the past decade.
It is interesting that vacancies are now at the lowest level of the credit crunch era.
Not surprisingly considering the economic situation explained above the problem here continues to grow.
The number of unemployed increased by 19 thousand in July. The increase is more substantial than in the preceding three months. The unemployment rate in July was 8.7 percent. Youth unemployment was 17 per cent.
This is an issue that has been building for a while now as demonstrated below.
Unemployment has risen on a monthly basis since July 2011. The average monthly increase over the past twenty-four months was 12 thousand.
The insight of the Dutch statistical body on this matter does leave a little to be desired!
The main reason is that more people than before became unemployed because they lost their jobs.
Also as ever with economic statistics there are always other definitions and versions.
According to the ILO (International Labour Organisation) definition, 7.0 percent in the Dutch labour force were unemployed in July versus 6.8 percent in June.
Another consequence of this is business failures
In July this year, 779 businesses and institutions (excluding one-man businesses) were declared bankrupt, i.e. an increase by more than 100 relative to June.
According to the accompanying chart 2013 looks well on course to exceed the numbers for 2009 when the credit crunch was supposed to be at its peak.
The Netherlands Central Planning Bureau (very Stalinist…) updated its forecasts only yesterday. In spite of the fact that like all official bodies next year is bright for economic growth it projects this.
Unemployment in 2013 is expected to rise by 150,000 people to 620,000, and in 2014 this will be up to 670,000.
A weaker development in real wages will contribute to less growth in private consumption in 2014.
The issue with real wages does have a similarity with the UK as it has been driven by above target inflation. In July consumer inflation rose to 3.1% which was the highest since September 2008. Thus she has a familiar weak economy above target inflation mix which has afflicted the UK in the credit crunch era.
Also tucked away in the detail was another success in these times for the rentier class.
The rent increase averaged 4.5 percent in July, the highest increase since July 1995.
Oh and there is a shark in the water a la the film Jaws.
These projections not yet include possible additional spending cuts by the Cabinet.
The central problem facing the Netherlands is how to safely defuse a house price bubble without it exploding. I discussed the issues surrounding this back on July 18th but since then the situation has developed further.
Prices of existing owner-occupied dwellings were on average 9.6 percent lower in June 2013 than in June 2012.
Prices of existing owner-occupied dwellings were at the same level in June 2013 as at the end of 2002. They were 21.0 percent lower than in August 2008, when house prices reached a record high.
This is plainly a depressing influence on the Dutch economy and a cause of why domestic demand is so weak at this time. In April (H/T Daniel Mugge) the European Central Bank reported that the Dutch debt to income ratio was 194% which was three times the Euro area average. Also mortgagees in the Netherlands at 52.5% had the worst loan to value ratio. Now these numbers have taken it time to collate and are from 2009/10 but now add in the house price and real wages falls occurring and you are left with only one conclusion.
Accordingly we find ourselves observing the bursting of a house price bubble one more time. Readers from Ireland and Spain in particular will be wondering if Dutch politicians prescribe the same medicine for their own country that they so vociferously prescribed for them. The Shakespearean phrase Et tu Brute comes to mind.
If one considers the impact of the bursting of this bubble on Dutch consumers and Dutch banks and recall what happened to the Spanish and Irish economies, then the future may be orange but is not bright for the Netherlands.