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Tuesday, 18 January 2011

Wanna know the truth about the economy? Just look at the “roadsigns”!!!

Compared to the United States and some other European countries, like Ireland, England, Greece, Belgium and Hungary where political unrest, societal acrimony and violent protests are increasing in number and intensity, the Netherlands look like a beacon of peace and quiet. Although our current government promised EUR 18 billion in cutbacks for the coming 4 years and tax pressure will be rising as always, the average Joe in the street (in this case called “Jan”) doesn’t seem to care. The credit crisis almost seems to be finished in the eyes of the Dutch, seemingly without leaving its marks and scars on Dutch society, as if it didn’t even start overhere. But did the credit crisis really finish indeed in The Netherlands? It’s hard to believe…

Unfortunately a lot of official data on the state of the economy overhere is incomplete, coloured or otherwise unreliable.

-       The official unemployment figures for instance exclude:
o    Freelancers that don’t have an assignment, but have no right to Unemployment Benefit
o    People that received Parttime Unemployment Benefit (special government measure: instead of being fired, these people receive a substantial part of their salary from the government for about a year and remain at their company)
o    partially handicapped people that don’t have a job;
o    people younger than 65 that are forced to be retired
o    people that live from other kinds of community benefits.

If these people are counted into the unemployment figures, the number of unemployed is rather 15% than 5%. Those are recession-like figures

-    Data on income, consumption, savings and purchasing power (a very popular concept in The Netherlands) can be hard to analyze as they may be subject to subjective accounting/measurement methods, inflation/deflation, changes in the buildup of the population and other influences.

-    Figures on the Dutch housing market are in my opinion coloured. It didn’t implode (yet), as I predicted in April 2009 , but housing prices have been in a slow-but-steady glide, while the housing market remains totally locked-up in the meantime. The current situation remains virtually unaltered as houseowners, government, banking world and interest groups (realtors and the houseowner association) are scared sh*tless for the consequences of negative price action and therefore fail to take necessary decisions: lowering houseprices, write-offs on bad mortgages and getting rid of the mortgage deductibility tax break. In the meantime everybody is hoping and praying for good news.

But what ARE figures that tell you something on the state of the economy in The Netherlands without being coloured for political or strategic reasons? Maybe we should just have a look at the “roadsigns”: what the streets, roads and highways are trying to tell us when we look at them.

The Netherlands is a very densely populated country with many commuters that depends heavily on domestic consumption and export of goods to our neighbouring countries (especially Germany). The lion share of all transport is still done by trucks, as graph 1 shows (underlying data, unless indicated otherwise, courtesy of the Central Bureau of Statistics in The Netherlands). Therefore looking at the roads and highways may give some useful information on the state of the economy

Graph 1, Transport of goods within The Netherlands, measured in Metric Tons
The graph shows that after the implosion of the dotcom bubble in 2002 and the countermeasures of the FED and European Central Bank (ECB) the domestic road transport went through a period of wild growth, probably caused by consumption of surplus value on homes due to extremely low interest rates and further introduction of Just-In-Time-Delivery within the logistics business.

There was also a steady increase in the number of cars on the road and initially the average number of driven kilometers per car, as shown in graph 2

Graph 2, Number of passenger cars in The Netherlands vs the average driven kilometers per car per year

The combination of increased road transport and passenger traffic lead to roads and highways that were constantly overcrowded, as shown in graph 3:

Graph 3, Annual aggregated Traffic Jams measured in 1000 kilometers (about 650 miles) . Copyright:

After the beginning of the credit crisis (in The Netherlands mid-2008), however, one could notice a clear decrease of the number of trucks on the road. Less visible but probably even more important is the substantial decrease of the average number of driven kilometers per car since 2005. As a consequence there has been a dramatic decrease of the number and length of traffic jams in 2009, that is not at all compensated in 2010.

Looking at the transport growth figures over the last three years (see graph 4), it shows clears why the highways were less crowded, with especially 2009 being a disastrous year.

Graph 4, Transport growth as a percentage 2008 – 2010

Some other signs you can see from the road are signs that point out:  “For Rent” and “For Sale”. After implementation of the ‘dot com’-countermeasures of FED and ECB, there has been a building frenzy in The Netherlands, especially for offices and company buildings. Reason for this were:
-         low interest-rates;
-         the “booming” economy;
-         creation of new, heavy subsidized office zones by municipalities
-         the fact that it is often cheaper for a company to develop new offices, than to change existing ones
-         an attitude of: the sky is the limit.

Office buildings that became vacant, remained vacant for long times and although the vacancy percentage (see graph 5) decreased strongly between 2005 and 2007, the credit crisis gave it the ultimate headshot.  The fact that the vacancy rate remained quite stable for the last three years is caused by the fact that new building project have been stopped/withdrawn by companies or municipalities and large project developers and contractors had to fight for their existance, cause by a lack of new orders.

Graph 5. Vacancy in houses and  commercial buildings in The Netherlands (Copyright: Jones Lang Lasalle Real estate)

                    Company Building

To give you an impression of these vacancies:

-         Amsterdam Zuidoost (southeast corner of Amsterdam), a very large office area were many financials have their headoffices, suffers from a 23% vacancy rate of office buildings. 80% of the vacancy in this area is considered structural

-         Amsterdam Zuidas (The “Manhattan” of Amsterdam) suffers from a 15% vacancy rate

-         Rotterdam Weena  (Prestigious area in downtown Rotterdam) suffers from more than 25% vacancy.

                                                               Office building in Amsterdam, for rent for already 3 years

There isn’t any indication whatsoever that the vacancy situation in the large office zones will improve in the coming years. It is the job of realtors to always remain positive, but the writing is literally on the wall. The situation in some of these office areas is so desperate that the only feasible solutions are demolition or rebuilding to living accomodation of office buildings. As a result of these possible actions the destruction of capital will be enormous and this will result in substantial write-offs for the banks that financed these buildings.

Of course is the predictive value of these figures on traffic, transport and vacancies very limited for the coming years. But you can say: if the pundits tell you that the economy is fine and growing, but the traffic density, transport data and vacancy of office space tell you otherwise, there is room for reasonable doubt

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