Netherlands: Economy picks up steam in the fourth quarter
February 14, 2019
In defiance of the general European trend of moderating economic growth, the Dutch economy shifted into a significantly higher gear in the fourth quarter. Economic growth came in at 0.5% quarter-on-quarter, up markedly from the meager 0.1% growth rate recorded in the third quarter. The economy was buttressed by firming domestic demand and an improved trade balance. In year-on-year terms, economic growth eased from 2.4% in the third quarter to 2.0% in fourth quarter.
In the fourth quarter, domestic demand picked up pace compared to the prior quarter. Private consumption swung from a flat reading in the third quarter to a 0.5% expansion, benefiting from another drop in the unemployment rate, an increase in employment and elevated consumer confidence amid a stable inflationary environment. On the flip side, Marcel Klok, senior economist at ING, noted that “the labour market is already starting to become a supply side restriction to growth.” Furthermore, government consumption also increased from a flat reading in the previous quarter to a 0.5% expansion, while fixed investment growth rebounded from a 0.1% contraction in the third quarter to a 0.7% increase in the fourth quarter.
Although the trade balance provided a positive impulse to national accounts, the reasoning behind it is less cause for celebration. Exports of goods and services contracted 1.3% over the previous quarter in the fourth quarter, contrasting the 1.1% expansion logged in the third quarter. Exports of both goods and services fell, with the latter contracting at a steeper pace. Meanwhile, imports of goods and services dropped even more sharply in the fourth quarter (Q4: -2.1% quarter-on-quarter; Q3: +1.2% qoq) with a contraction in imports of both goods and services.
Taking into account recently released data for the final quarter of 2018, the Dutch economy grew 2.5% last year over 2017—when the economy expanded 2.9%—on the back of domestic demand as the positive contribution from the external sector moderated.
Looking ahead, the economy is expected to continue growing at a robust, albeit more moderate, pace. Economic growth should benefit from a tight labor market supporting wage growth and private consumption, while the government is set to pursue a mildly expansionary fiscal budget. Nonetheless, downside risks remain present on the external side with the possibility of a flare-up in the trade spat between the U.S. and China following the end of the truce in early March; a disorderly or hard Brexit; trade tensions between the EU and the U.S; and a prolonged Italian recession. Even so, Klok added that “the fourth quarter figure confirms our expectation that the Dutch economy will be able to grow faster than the eurozone average.”
Netherlands GDP Forecast
FocusEconomics Consensus Forecast panelists see GDP growing at a softer pace of 2.0% in 2019, which is down 0.1 percentage points from last month’s projection. For 2020, the panel expects the economy to expand 1.7%.
Author: Jan Lammersen, Economist