Netherlands: Dutch economy outperforms Eurozone average in Q2
August 14, 2019
Preliminary data showed that the economy expanded 0.5% quarter-on-quarter in Q2, matching the first quarter’s expansion, supported by rebounding domestic demand and a stronger external sector. Compared to the same period a year prior, the economy expanded 2.0%, up from the 1.7% increase recorded in the first quarter.
On the domestic front, household consumption expanded 0.8% quarter-on-quarter (Q1: +0.2% quarter-on-quarter seasonally-adjusted), supported by the tight Dutch job market: Average unemployment fell to 3.3% in the quarter—the lowest reading since current records began in 2003—while vacancies are also at an all-time high according to Marcel Klok, senior economist at ING. Moreover, changes to the VAT and energy taxes at the start of the year, which resulted in a jump in inflation on a year-to-date basis, seemingly left households unmoved. Meanwhile, consumers turned optimistic June, which likely added some impetus to private consumption growth. In contrast, fixed investment growth more than halved to 1.3% (Q1: +2.7% qoq s.a.), while government consumption dropped 0.1% (Q1: +0.4% qoq s.a.).
On the external front, exports of goods and services growth more than doubled from 0.6% in the first quarter to 1.3% in the second. This came amid a tripling in growth of goods exports and a doubling in services export growth. Imports of goods and services growth, meanwhile, slowed to 0.7% in the second quarter from Q1’s 1.6%, as goods imports softened markedly and offset stronger services imports. Subsequently, the external sector contributed positively to headline growth.
The Dutch growth rate consequently comfortably outstripped the Eurozone average. However, Klok questioned: “how long this resilience can last if the global growth slowdown persists?” Expanding upon this point, Klok noted: “A Dutch saying goes that when the German economy sneezes, the Netherlands gets a cold. However, that loud sneeze (…) from the east in 2019 [the German economy contracted 0.1% qoq] seems to have largely passed the Dutch economy by. The Dutch seem to have taken their flu shot in the form of strong domestic demand, but also delivered a favourable trade performance.”
Looking ahead, the economy seems set to log another solid expansion this year, albeit below last year’s result, as strengthening domestic demand should offset an expected softer contribution from the external sector in the year as a whole. Private consumption should benefit from a tighter labor market, while stronger public spending growth should further boost the economy. Downside risks mainly stem from the external side, especially related to the stronger-than-expected slowdown in Germany amid lingering trade tensions between the United States and China, and the U.S. and the EU.
Author: Jan Lammersen, Economist