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Monday, 2 April 2012

The Dutch economy seems in a tail-spin. Diminished disposable income and rising numbers of debt restructurings aggravate dropping domestic demand

Last Thursday, I already wrote that the Dutch consumers currently keep their hands tightly in their pockets and that the policy of zero wage increase, desired by both the employer’s associations and the current right-wing government, will only make things worse, instead of better.

Today the NEVI, the Dutch association of Purchase Managers (, reported its monthly Purchase Managers Index. This index is a tell-tale signal for the consequences of stalling consumption; a consumption that will only become worse when the zero wage increase-policy is maintained. Here are the pertinent snips:

Considerable drop in new orders: NEVI Purchase Managers Index (PMI) is 49.6

The NEVI PMI was 49.6 in March, compared to 50.3 in February. This points towards a further deterioration of circumstances for companies.

The number of received new orders dropped. The domestic demand was limited, but the orders from abroad increased. The production volume remained unchanged. The arrears in production dropped considerably and the supply of finished products in March increased for the first time since August 2011. The workforce increased for the first time in six months. The purchase cost inflation was the largest since June 2011. The sales prices increased considerably, but not sufficiently to compensate increase purchase costs. Purchase activities dropped. In spite of that the time of delivery increased for the third month in a row.

After a slight increase in February, there was a substantial drop in the number of received new orders. The market demand was very low, especially for domestic orders. Many domestic customers postponed or even cancelled their orders. According to the latest data, it is the eighth time during the last ten months that the number of newly received orders dropped at the Dutch production companies.

In spite of the smaller number of received orders in March, the Dutch production companies contracted more personnel. This points to a certain confidence in the outlook for the number of orders. The employment in this industry increased substantially. This was the first expansion of the workforce in six months, due to an expected increased of sales and enduring efforts to reduce arrears.

There you have it, in the red and bold text: the consequences of dropping consumer confidence and consumer demand. At this moment wage restraint or even a zero wage policy is not yet official policy; can you imagine what this brainless policy will do for domestic demand? I can!

Although US demand increased, it is not at all enough to compensate the dropping domestic demand and the weak demand from the South-European countries that have been very important customers during the last ten years.

The companies in the aforementioned investigation seem to have trust in improving circumstances, as they contracted more personnel, in order to meet increased future demand and to reduce their arrears.

However, I truly doubt that these companies are right. I don’t see much signals for improvement in 2012, just like I didn’t in 2011. And as most companies are not stupid, I seriously doubt if any of these newly contracted workers received a fixed contract. It is of course quite easy to get rid of excess personnel when everybody involved has a temporary contract.

There is hardly any real improvement; not much in Europe and not at all in The Netherlands, where the Dutch consumer sits on his hands. In my opinion, the success at the European stock exchanges in 2011 can only be owed to the Greek debt deal, perhaps to an oversold stock market at the end of 2011 and especially to the more than generous lending program of the ECB, where the banks could borrow ‘money virtually for free’. It was like investing millions of dollars in order to catch two hundred grant.

In this case, the hard-learnt lesson of many investors is that of the game of musical chairs: dance while the music plays, but be prepared to grab an empty chair immediately after it stops. I would not be surprised if the music had already stopped for 2012 in The Netherlands.

There was also news from the Dutch Central Bureau of Statistics ( about the Dutch consumers. One message was already published last Friday:

The disposable household income has dropped for the fourth year in a row. Adjusted for inflation, the disposable household income dropped 0.4% in 2011, the same as in 2010 and this was largely caused by the fact that the wage increase of 1.8% was below the level of inflation (2.3%). Higher contributions to health care insurance schemes and pension schemes also had a negative effect on the disposable household income. As household incomes declined, consumer expenditure dropped by 1.1%.

The total financial capital of households rose by 52 billion euro last year and for the first time in history the 1 trillion euro barrier was broken. This includes the capital owned by pension funds and life insurance companies. The value of shares owned by Dutch households was reduced by 27 billion euro due to purchases and falling share prices. The investment portfolios held by pension funds and life insurance companies, on the other hand, increased by 77 billion euro. At the same time, the total mortgage debt increased by 13 billion euro to a total of 665 billion euro, which is the lowest increase since 1995. This is due to stagnation on the housing market.

The conclusion of this article is: Dutch people might actually have become richer in 2011, but they have definitely less money to spend. Their money is stored in (in)voluntary savings, like the pension funds, amortization of mortgages and private savings accounts and in rising healthcare costs. Imagine again what a zero percent wage increase-policy might do for disposable income with an inflation of 2-3%.

A second article of the CBS concerned the soaring number of debt restructurings in The Netherlands:

In 2011 almost 15,000 debt restructurings have been verdicted. This is almost 30% more than in 2010. Herewith the increase, that started halfway 2009, continues firmly. After a few years of reduced numbers of debt restructurings these are back at the level of 2005-2007. Judges verdicted almost 15,000 debt restructurings in 2011, which were 3,300 more than in 2010. These were mainly private citizens, in contrary to the second half of 2010 when these were mainly ex-entrepreneurs.

Debt restructurings in The Netherlands 2005-2011
Source of data:
Chart made by
Click to enlarge
The increase of the number of debt restructurings comes together with a less favorable economic climate. More companies default and more people lose their jobs. Also a long-lasting situation of double housing costs and less courtesy at creditors are possible explanations for the increasing number of debt restructurings.

I guess that I was right when I predicted that 2011 would be a very hard year for The Netherlands. In my opinion the economic situation will become worse and worse, especially with the current lackluster and indecisive Dutch government, locking itself up for almost one month to postpone the inevitable decisions on additional austerity measures and measures to spur economic growth. 

The CDA-VVD government, with, as its silent partner, the PVV of Geert Wilders  has taken a refuge in the Catshuis, the official residence of the Prime-Minister. The parties involved discuss the direction of the €16 bln in additional austerity measures that are necessary in order to meet the 3% deficit-ceiling on the state budget that is required by the European Stability and Growth Pact.

While it is especially clear where the current government doesn’t want to take measures (namely at the totally messed up Dutch housing market and in the retirement age of 65; both issues where interferance is needed most), it is not clear at all where the government does want to take measures.

As a matter of fact, it might take until the end of April before some light has been shed at the additional austerity measures that this government will take. Decisiveness is a concept of which the Mark Rutte-government is seldomly accused.

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