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Thursday, 24 March 2011

Does the Dutch economy really grow? To the average Joe it doesn’t seem like it!

This week some key figures about the Dutch economy have been presented by the Dutch Central Bureau of Statistics (CBS).

To start with the good news:

Substantial growth in private sector investments 
In January 2011, the private sector invested 6 percent more in tangible assets than in January 2010. However, in December 2010, private sector investments were down by nearly 2 percent on one year previously. The reversal from negative to positive growth mainly came because year-on-year investments in construction were up for the first time in two years. In January 2010, production in the construction sector was hindered by harsh weather, whereas this was hardly the case in January 2011.
Private sector investments. Figures courtesy of
 To the unaware these figures look like an improvement, but there are two “but’s”:
-   As January 2010 had really terrible winter weather virtually stopping all construction possibilities, the improvement in construction in January 2011 might be in fact a Pyrrhic victory, that clouds disappointing results in all other lines of business.
-   As there is a structural vacancy in Commercial Real Estate of approx. 12% in The Netherlands, building new CRE is like building to promote further vacancy. In the end someone has to bleed for this: the taxpayer.

And now we go on with the bad news, although the first item is not really bad news on second glance:

House prices drop further
Prices of existing owner-occupied houses were on average 1.5 percent lower in February 2011 than in February 2010. According to the price index of existing residential property – a joint publication by Statistics Netherlands and the Land Registry Office – house prices dropped more substantially in February than in January, when they were 1.1 percent down on one year previously.
All types of dwellings were cheaper in February 2011 than in February 2010. Prices of detached houses dropped most (3.4 percent). Corner houses and flats showed the smallest price decrease (0.8 percent).
Prices fell in all provinces except in Groningen and North Holland. With 3.4 percent, residential property prices declined most in Friesland and North Brabant. Prices were 1 percent up on February 2010 in Groningen; they remained stable in North Holland.
Prices of existing residential property also fell relative to January 2011. With 0.2 percent, the price drop was exactly the same as in the two preceding months.
Nearly 10 thousand existing houses changed hands in February, i.e. an increase by nearly 8 percent relative to February 2010. February was the second month in a row, in which house sales were up on one year previously.
Change of housing prices year-on-ear.

The prices of housing in The Netherlands can not drop fast enough. The housing market is still totally locked-up and politics is still totally unwilling to do something about it. Now the market does the job that politics won’t do. I consider this a positive figure, albeit just a start.

Consumers were less confident about the economic situation in March than in February. As a result, the component indicator economic climate dropped by 6 points to -5. Confidence in the economic situation over the next 12 months plummeted by -11 points. Consumers’ opinions on the economy over the past 12 months also deteriorated, but only slightly.

Consumers’ willingness to buy remained stable. This component indicator of consumer confidence stood at -9 in March versus -8 in February. The component indicator willingness to buy remains at a low level.

% Balance of positive and negative answers
 by Dutch Consumers.

This proves that the Dutch people’s Bullsh*t-O-Meter still does work properly. People don’t buy the good-news stories on the growing economy by the government and hired pundits. Instead they wait to see which way the wind blows. And they are still prepared for economical headwinds when international stimulus finally stops and interest will get higher. And the chances of interest getting higher sooner rather than later are very high at this moment.

The unemployment numbers are still quite low, but slightly up compared to last month. 
Unemployed labor force per month.
This extra unemployment is due to seasonal circumstances. The seasonally adjusted unemployment remains stable at 5.1%.

But when the economy would be really growing you would expect the unemployment figures to drop. This doesn’t happen, however. Also I explained a few weeks ago about the hidden unemployment in The Netherlands.

In US Unemployment figures not expected to be much better, I show why there is more unemployment in The Netherlands than you could see in once glance.

So although the unemployment in The Netherlands is relatively low with only about 5%, there are a few ‘buts’ in these figures. The first is the growing low-aged social welfare population that has less chances on the labor market for the future.

The 2nd but is: Over the last years there was a trend, especially in the IT and the building (materials) branch of trade, to push people towards flexible contracts, temporary employment and especially freelancing. Although stimulated by the government, it was mainly a push by the employers in these businesses. If these temporary workers and freelancers have no jobs or contracts, due to the problems and stagnation in the building sector or disappearing jobs in the banking sector, they will be unemployed without being in the official unemployment figures. They cannot claim Unemployment Benefit and even claiming social welfare is impossible without liquidating their possessions. This might be a 2nd poverty trap (see figures 4 and 5)

All in all there is not much reason to be overly optimistic. Especially if you look at the export possibilities with the Chinese and Indian economy on the brink of overheating and the Eurozone still in big problems concerning the Euro emergency fund.

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