Dutch Economy in Focus – Growth estimates lower after Brexit

by: Philip Bokeloh

The economy is doing well. GDP grew by 0.5% in the first quarter compared to the previous quarter. Consumption, investments and international trade all contributed.

Producer and consumer confidence is high. The recovery of the housing market is boosting confidence. Businesses and households are optimistic.

The Brexit referendum is causing tensions in the financial markets. The British decision to leave the EU is creating uncertainty. The new situation has made it necessary to reduce our estimates.

Dutch-Economy-in-Focus-June-2016-final.pdf (193 KB)

The Dutch economy is doing well this year. GDP grew in the first quarter by 0.5% compared to the previous quarter. Consumption, investments and international trade are all contributing to the upswing in economic activity. The sustained growth in consumption is being driven by high confidence levels among households alongside their improved purchasing power. After dipping slightly at the start of the year, sentiments have clearly recovered. Consumer confidence is riding high on the back of the housing market recovery. The upturn in the labour market is adding to the positive mood. The improvement in the labour market has been accompanied by a moderate advance in hourly wages. Despite the increase in wages, unit wage costs dropped in 2015, indicating that the competitiveness of Dutch companies has remained intact. Higher consumption and investments are propelling a sustained acceleration in imports. Exports are rising too, but less sharply. Since 2015, imports have actually grown faster than exports, a development that is being reinforced (both on the import and export side) by the lower gas output. Owing to the two-way impact of import and export growth, the contribution of international trade to growth is steadily diminishing and even turning negative. The current account surplus is also shrinking. It should be noted that the lower gas income is not only depressing the current account balance but public revenues as well. Despite this setback, public finances are on the mend, the reason being that the lower gas revenues are more than offset by the much higher income from taxes and social security contributions.