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Monday, 28 May 2012

The Dutch economy might contract less in June, according to a very optimistic forecast, but the recession in The Netherlands is far from over. The unemployment is following the uphill path; just like I predicted.

It is time for a macro roundup of the Dutch economy. Various sources wrote on the situation in The Netherlands during last week.When these sources are combined, this paints a picture of an economy that might not contract so aggressively in June, but the unemployment and mood are further deteriorating to levels that have not been seen in a long time. Especially the unemployment seems to go past the much too optimistic predicted rates of the Central Planning Bureau for 2012 and towards the 7-8% that I predicted in my Outlook for 2012.

For me this is not a surprising development, as I noticed that Dutch companies were having much less patience with their excess workers than in 2009. Although it is difficult for the people involved, this is not necessarily a bad development. When the economy of a country, economic block or a large part of the world is in a situation of overproduction, the only thing that can happen to help the economy recover is producing less goods and products with less people. In this way the overproduction disappears slowly, but surely, until there is room for slow growth and a balance in production again. This is a natural process that can be postponed, but cannot be avoided.

This contraction of employment happened with blistering speed in the US and the Southern and Eastern European countries in 2008 and 2009, but in The Netherlands the growth of unemployment seemed to lag in those years. What was thought to be a narrow escape at the time, comes now back at The Netherlands with a vengeance. I predict also that Germany won’t escape its fate either. It might take a few years, but then the growth at other country’s expense will be over too for Germany.

The following article on the Dutch economy is printed in Z24 ( , the online economic newspaper in The Netherlands. Here are the pertinent snips:

In June the Dutch economy shrinks by 0.7%; much less than the -1.7% of May. This is forecasted by “De Stand van Nederland “(i.e. Rate of The Netherlands), the conjunctural barometer of Z24.

This forecast is less grim than in the last two months. However, it is too early to conclude that the Dutch economy is improving. Still predictions prove to be worse when new data comes available. May, for instance, turned out far worse than initially thought (-1.7% instead of -1.1%).

Consumers are a fraction less pessimistic about the housing price in their street. At the same time, they are more dismal about the labor market and the state of the Dutch economy.

Other rays of light are missing yet: car sales dropped by 14% last April and the electricity production dropped lightly by 0.15%

A positive factor is that Germany still seems in good shape. German metal workers receive a wage increase by 4.3%. This can stimulate consumption; also in The Netherlands, due to the German tourists.

The Z24 forecast on June seems much too optimistic, just like the forecast on May was much too optimistic too. It seems a prediction in the category: we think the economy will grow. All data point the other way around, but we are sure it will grow anyway… Yeah, right!

In contrast with the overly optimistic Z24, the data of CBS ( is based on past observations, not on predictions of the future. The figures based on the recent past give unfortunately little solace for the immediate future.

Here is the CBS data on the mood among manufacturers:

The mood among Dutch manufacturers deteriorated further in May. The producer confidence indicator stood at – 5.0 versus – 3.3 in April. Manufacturers have gradually become more pessimistic over the first five months of 2012.

Producer confidence consists of three component indicators: manufacturers’ opinions on their order positions, the expected output over the next three months and opinions on their stocks of finished products.

Manufacturers’ opinions on their order positions deteriorated significantly. This indicator fell to the lowest level in twenty-four months. Their opinions on their stocks of finished products also deteriorated marginally. Manufacturers  were as pessimistic about their output in the next three months as in the preceding month.

Just like in the preceding months, manufacturers indicating that the value of the orders they received has grown in the past three months were outnumbered by those reporting a decline. The index order position (orders expressed in months of work) dropped to 100.1.

Manufacturers were more pessimistic about future employment in their sector than in the preceding months. The number of manufacturers anticipating staff cuts in the next three months was distinctly higher than the number of manufacturers expecting employment to improve.

Producer confidence in manufacturing industry
Producer confidence in the manufacturing industry
Data courtesy of
Click to enlarge
These are exactly the kind of news items that make me doubt the optimistic view of Z24. Most entrepreneurs and manufacturers are optimistic people; otherwise they would not be entrepreneurs. When these people are getting more pessimistic, than you better take care of yourself.

This point is proved by the CBS unemployment data:

According to the latest figures released by the CBS, unemployment adjusted for seasonal variation has grown by 24,000 to 489,000 in April 2012.

Unemployment growth was relatively high in April. The average monthly unemployment growth over the past three months was 7,000. Last month, 6.2% of the labour force were unemployed. It is more than six years ago that the unemployment rate in the Netherlands exceeded 6%.

Unemployment increased among both genders in April. Over the past three months, unemployment among men rose more rapidly than among women. During this period, the average monthly unemployment growth was particularly high among people in the age categories 15-25 and 45-65.

I predicted that the unemployment would rise and it is not surprising that this takes place among the two most vulnerable groups: the youngsters that start their careers and the ‘oldtimers’ that will end their career within a limited number of years. The former have problems with finding a good job to start their career with and the latter have problems with finding a new job, when the last one ended for some reason. Whether this is justifiable or not; it is a fact of life.

Companies won’t take any risks at the moment and don’t want to hire workers that are too unexperienced (the youngsters) or too expensive, not motivated enough or too often ill (the older workers; these are cliches of the most terrible kind, but they exists as a cliche because everybody believes them). In my opinion, the rising unemployment won't reside with these groups alone; it won’t be long until unemployment is also hitting the ‘golden category’ between 25 and 45.

The following news item should be a tell-tale signal:

The amount of hours worked in stage A temp jobs was nearly 2% down in the first quarter of 2012 from the fourth quarter of 2011. The number of hours worked in stage A temp jobs declined for the third consecutive quarter. Adjusted for seasonal variation, the index figure (2005=100) for the number of hours worked in stage A was 111.4 versus 113.2 in the fourth quarter of 2011.

Stage A includes people working for temp agencies on a contract basis without regular terms of employment. In stage A, it is easier for both parties – employer and employee – to terminate the contract than in the subsequent stages B and C.

The situation on the labour market has deteriorated over the past few months. The number of job vacancies and the number of hours worked in temp jobs deteriorated for the third quarter running. Unemployment is rising. The number of jobs of employees fell marginally in the first quarter relative to the fourth quarter of 2011.

Temp hours worked in The Netherlands
Data courtesy of
Click to enlarge
Normally, temp jobs are a leading indicator for the economy, as they react more rapidly to situations of growth and decline. The fact that these jobs declined for the third quarter in a row tells two things:
  • The economy will not start to grow very soon, but will rather contract.
  • Unemployment will be further up, as the steady jobs might trail the temp jobs.
This is not an optimistic view, but I know it will be the right one.

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