Whilst some measures of the state of play in the Euro area have been improving in 2012 there are some moving in the background which have not. An example of the former is the way that government bond yields have improved in most of the peripheral nations in trouble. An example of the latter is the way that the economies of what are considered core Euro nations have weakened in 2012 and in particular the way that the Netherlands economy has behaved.
The Background
On the 15th of November (on my Notayesmanseconomics blog) I discussed the very poor latest Gross Domestic Product figures for the Netherlands and here are the details from her statistics agency.
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
Compared with the third quarter of 2011, the economy shrank by 1.6 percent
This was not an outright shock as I had discussed back on July 10th that her industrial production was weak.
manufacturing output in the period April-May was more than 1 percent down from the period February-March
However the size of the fall was and is a concern. After all the Netherlands is what might be called a core-core nation for the Euro project. Also the heavy lifting of the Euro area bailout programmes (EFSF,ESM etc.) relies on nations such as the Netherlands to counterbalance the weaker nations.
Whilst the founders of the Euro hoped for economic convergence the weakening of a previously strong economy was not quite what they had in mind!
Today’s data
Unemployment and Employment
Unfortunately unemployment is on a rising trend and the unemployment rate rose to 7% in November from 6.8% in October. There are now 547,000 unemployed which is up 99,000 or 18% on a year ago. If we look back unemployment turned higher in June of last year when is was at a rate of 5%.
Regular readers will be aware that employment trends have at times been a leading indicator in the credit crunch era. Here at first the picture looks slightly better as employment is down by 26,000 at 7,366,000 but this hides the fact that it was rising until May and is down 59,000 since then. Also if we look back employment fell in 2011 too if only slightly.
For those who have followed the situation regarding US employment/unemployment you may be interested to know that the participation rate in the Netherlands has risen. Also I have used the Netherlands measure as there is also an international measure where unemployment is now 5.6% up from 4.9% a year ago! How many times do we end up discussing statistics? As if by magic a million more people are employed….
Household Consumption
These numbers are weakening too.
In October 2012, household spending on goods and services was 2.4 percent down from October 2011, the most substantial decline in the past three years
And we have a by now familiar influence on this.
In the Netherlands, the high VAT (value added tax) rate was increased from 19 to 21 percent, effective from 1 October 2012
These numbers turned down in August 2011 and the only positive month (marginally) was September of this year when consumers were presumably trying to beat the VAT (sales tax) rise.
Investment is down too
In October 2012, the volume of private sector investments in tangible fixed assets was more than 4 percent down from October 2011
This number is probably worse than it looks as this October had two working days more than last year’s.
What about prospects?
We get the idea from the headline.
Dutch consumers very pessimistic
If we look into the detail then we see this.
Consumers were much more pessimistic about the economic climate in the past and in the next twelve months than in November. The component indicator economic climate dropped 8 points to -64.
Manufacturing
Having looked at this back in July let us examine the latest numbers from earlier this month.
In October 2012, the average daily output of the Dutch manufacturing industry was 1.7 percent down on October 2011
Or if you want some more perspective.
The average daily output of the Dutch manufacturing industry has fluctuated around the same level for two years now.
House prices
This has become a factor in what if it continues will no doubt end up being called the Dutch Disease. The Land Registry tells us that house prices rose from 100 in 2005 to 112.2 in 2008 which is a familiar European move if more moderate than some. They then started to fall but this has accelerated in 2012. For example in the year to October they fell by 7.8% leaving the index at 94.8.
As ever we are left wondering what is happening now?! If we look at the other economic indicators discussed and analysed today which show a weakening economy then we should expect further house price falls in the Netherlands. The annual rate of fall has been steady at a rate of circa 8% since the summer but the fear now must be of an acceleration. One factor that is familiar around Europe now is that the number of houses sold has fallen,so lower prices and lower volumes come as a job lot.
Looking Forwards
The Dutch Central Bank is a little behind the times with its latest update but we can garner some information from it still. For example even in the more optimistic days of last summer it thought this.
DNB (De Nederlandsche Bank) calculations show that the Budgetary Agreement will reduce GDP growth in 2013 and 2014 by, respectively,0.5 and 0.3 percentage point.
We now know that this Euro style austerity will yet again impact on a weakening economy. Also even with what looks now a rose-tinted scenario it thought this.
According to these figures, GDP would grow by a mere 2.2% in the 2008-2014 period, the lowest rate in any seven-year period in post-war history.
With this came a rise in expected unemployment.
Her banking sector
There are two main issues here the first is simply that the Netherlands has a large banking sector. If we add ING and Rabobank together then their combined size is approximately three times the output of her economy. Her taxpayers have already found themselves supporting some of her banks and the danger of the economic situation described above is that they may yet have to do more.
Comment
The signs are clearer and clearer that the Netherlands is heading into 2013 with an economy that has not only slowed but is probably shrinking. This will put a strain on her already weakened banking sector. This means that her public-sector finances have a considerable tail risk to them. On the surface they look relatively strong as many nations would like a fiscal deficit of 4.5% of economic output (2011) or a national debt of 68.2% of it (2nd quarter of 2012). However this could rapidly deteriorate if more help is needed by her banks.
If we consider her relationship with her Euro area partners then as of the second quarter of 2012 her contribution to the various bailouts was 1.6% of her economic output. We have seen that since then such bills have continued to rise just as the possibility has arisen that financing them could be problematic for the Netherlands. Whilst her share of the Euro area “rescue” vehicles is only 6% it would create quite a shock if she started to find it difficult to maintain this. This is one of the reasons why I labelled such vehicles as unstable lifeboats.
