Netherlands: PMI drops to an over two-year low in January
February 1, 2019
Momentum in the Dutch manufacturing sector softened at the start of the new year as the manufacturing Purchasing Managers’ Index (PMI) produced by NEVI and IHS Markit dropped to 55.1 in January from 57.2 in December. January’s result marks an over two-year low but remained above the neutral 50-point mark separating expansion from contraction in the sector and the long-term average of 52.7.
The moderation in the headline reading came on the back of easing growth in output, new orders and employment while new export orders rose at a modest pace due to weakening demand from Germany. Demand from Germany weakened in part due to the struggling automotive sector; in fact, new car registrations continued to contract in the fourth quarter in Germany. Moreover, new orders growth eased for the first time since October and expanded at the softest pace in over two years in January. Although moderating, output growth outpaced new business growth and as a result backlogs of work fell while stocks of finished goods increased. This suggests that output is to slow further in the months ahead. Slightly more positively, pressure on the supply chain eased; however, this reflected the weakest activity in purchasing activity in over two years.
In terms of prices, the increase to the lower VAT rate on 1 January led to a modest rise in input price inflation while costlier raw materials, transport and energy also supported still-strong inflationary pressures. The increased operating costs were passed on to consumers as output price inflation rose at the second fastest pace in nearly eight years. Looking ahead, output expectations reached an over two-year low but firms remained optimistic nonetheless.
Commenting on the result, Trevor Balchin, director at IHS Markit, said: “Has the Netherlands finally caught Germany’s cold? […] Underlying survey data signalled downside risks to output growth in the coming months. […] Although growth clearly slowed at the start of the year, the Netherlands remains a bright spot in the eurozone.”
Author: Jan Lammersen, Economist