Alexandra is an Australian citizen and an experienced expat, having spent (quite a bit of) time in A...
Small signs of Dutch economic recovery22 August 2013, by Alexandra Gowling
While the latest CBS report on the Dutch economy showed it had shrunk by 0,2 per cent in the last quarter, signalling that the Netherlands is still in a recession, there are definite signs that it is beginning to turn the corner.
The Minister of Economic Affairs has said the data indicates that the contraction of the economy is slowing down.
"The contraction of the economy will further decrease in the second quarter and the slight growth in exports is very encouraging. The fact that both the French and the German economies have seen renewed growth is good for the prospects of the Dutch export sector," he said.
What’s still bad?
Both consumer spending and business investments decreased in this quarter compared to a year ago, as did the number of vacancies, as the unemployment rate grew. Further indicators however, include:
› High inflation
According to De Nederlandse Bank (DNB), prices in the Netherlands are rising sharply. In July, inflation was at 3,1 per cent, almost twice as high as inflation in the eurozone.
All the indicators that contribute to the level of inflation (apart from energy) are currently higher in the Netherlands than they are in the euro area. This is mostly due to higher services inflation, closely followed by non-energy industrial goods inflation.
The rest comes from the fact that food price increases in the Netherlands are greater than the average food price increases in the euro area. Inflation on Dutch food was 4,7 per cent in July, as opposed to 3,5 per cent for the eurozone.
› Low house prices
CBS reported that in July, the prices of owner-occupied properties were on average 5 per cent lower than last year. It’s a serious drop, but less than the 9,6 per cent that house prices fell by in the preceding month.
Prices are now at the same level they were in early 2003. That’s 20 per cent below the record set in August 2008.
› Low purchasing power
The purchasing power of the Dutch population fell by 1 per cent in 2012, the largest yearly drop since 1985. This follows several years of decreased purchasing power, as reported by CBS.
Worst hit are self-employed people, who suffered a 2,7 per cent decrease. Pensioners also saw their purchasing power decline for the third consecutive by year, by 1,2 percent.
And the good news?
As the minister said, the contraction is slowing down, while exports even grew slightly and some parts of the eurozone moved into growth. For the Netherlands, further good indicators are:
› Inflation to drop
DNB also reported that as inflation is being pushed up by current government measures, they expect the high level of inflation to be only temporary.
According to them, inflation will drop sharply in October as the effect of the VAT increase unwinds, and the level will continue to drop, reaching 1,6 per cent in 2014 and then 1,5 per cent in 2015.
› AAA credit rating retained
Rating agency Fitch has confirmed its AAA credit rating for the Netherlands, citing its strong economy, institutions and credit.
According to their assessment, the Dutch economy will shrink by 1,3 per cent this year and will sit on zero in 2014, only moving into a growth of 1 per cent in 2015.
This timescale is apparently enough for the government to reduce its debt and continue to retain the credit rating. If that expectation has to be adjusted beyond the three to four years, however, there may be a reduction in the rating.
› Consumer confidence increases
The mood among Dutch consumers improved in August, also according to CBS, as the consumer confidence index rose by five points from -38 in July to -33 in August.
Looking forward for the next 12 months, consumers were far less pessimistic about the economy than they had been in June and July. As part of the overall measurement, the indicator on economic climate rose by 15 points to -42.
Willingness-to-buy, however, fell by one point in August, to -26. People’s opinions about whether it was a favourable time to buy expensive items like TV sets deteriorated slightly, as they were more pessimistic about their own financial situation over the next 12 months.
All in all, it's probably fair to say that on balance, things aren't getting worse. How quickly it will get better though, is yet to be seen.