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Friday, 22 March 2013

Dutch unemployment is soaring, according to the CBS. This sheds an unfavorable light on the Central Planning Bureau’s promises of economic improvement in the second half of 2013

Today, the Central Bureau of Statistics (CBS) in The Netherlands presented the unemployment data for February, 2013. Not surprisingly, the data was not good at all:

  • 21,000 new unemployed in February
  • Unemployment rate further up to 7.7% 

The most recent figures released by Statistics Netherlands show that unemployment adjusted for seasonal variation grew by 21,000 in February to 613,000. The average monthly increase over the past three months was 20,000. Within a period of three months, the unemployment rate has gone up from 7.0 to 7.7%.

Unemployment grew more rapidly among men than among women. Three months ago, 6.8% in the male labour force were unemployed, versus 7.7% in February. The corresponding figures for women are 7.2 and 7.8%.

According to the International Labour Organisation (ILO), 6.2% of the Dutch labour force were unemployed in February, as against 6.0% in January.

In my opinion, this is really bad data, but it didn’t come unexpected at all. Before the start of 2012, I  expected already that the unemployment would soar during that year.

I was too early, as it  didn’t happen at the time; at least, not in the tempo that I expected.

Nevertheless, in 2013 the velocity of unemployment growth suddenly increased. This was in synch with my prediction, that I wrote in my Outlook for 2012:

Many companies, like the one that I work for, wrote red figures over the last three years since 2008. And although some companies still managed to make a decent profit during this period, I don’t expect the Dutch companies to maintain their excess personnel when the current recession proves to be a nasty one. The period of mass lay-offs that I noticed during this year has only just started, is my conviction.

During 2012 and 2013, the recession proved indeed to be a nasty one: a recession with a depression-ish appearance. 

And indeed, the Dutch companies started to get rid of excess personnel. This development is far from over yet. To the contrary, it is rather gaining momentum.

However, few weeks ago, the pundits of the Central Planning Bureau (CPB) predicted a slight economic revival for the second half of 2013:

Despite a slight recovery later on in the year, GDP volume in 2013 will fall by 0.5%. For 2014, the economy is expected to grow again by 1%.

At that time I already declared that this was an overly optimistic outlook, especially when it came to unemployment: 
  • I’m really puzzled how the CPB can think that the unemployment will remain relatively stable in 2013 and 2014 and the private consumption might even improve in 2014:
    • Mass lay-offs have been the name of the game, since mid-2011 and their number is only soaring in the financial industry, Building&Construction, Transport&Distribution and a dozen of other industries in The Netherlands;
    • In my humble opinion, unemployment will rise further until 8.25% at the end of 2013 and perhaps even 9% in 2014;
    • This will have a devastating effect on consumption: this will not only drop in 2013, but also in 2014, is my conviction; 

After seeing today’s unemployment data, this predicted revival in 2013HY2 and 2014 seems indeed just a figment of the CPB’s imagination..., as in ‘wishful thinking’.

As a matter of fact, I am very close to accusing the CPB of just stating what the Dutch politicians want to hear, when it comes to the revival of economic growth and especially the reduction of unemployment.

I keep the leaving executive director of the Central Planning Bureau, Coen Teulings, in high regard. At a number of occasions, he showed the guts to bring an uneasy message to unwilling political ears. 

However, in case of the economic growth and the rising unemployment, he seemed to have sugar-coated the difficult messages that he brought. That is a grave mistake, in my opinion.

For the economy to recover and unemployment to drop, a few conditions must be fulfilled: 
  • There must be (an outlook to) improvement in certain key-areas of the economy;
  • The problems that caused the crisis in the first place, must be (partially) out of the way;
  • There must be drivers for (extra) jobs:
    • For unemployment to drop, the growth in demand for workers by companies and the government must exceed the growth of the working population. Otherwise the unemployment remains either stable or it grows; 
If we look into these bullets, you will agree with me that the chance for a quick economic recovery  is very dim:

Bullet 1

For bullet 1, let’s have a look at these key areas:

Outlook for economic recovery and unemployment reduction
Click to enlarge

Bullet 2

It is my opinion that the crisis in The Netherlands has mainly been caused by a toxic combination of:
  • external factors (i.e. the emerging dire economic situation in the United States and the southern countries of the Eurozone);
  • undercapitalized Dutch banks;
  • the plummeting housing market, which strongly reduced the value of people ‘possessions’; 
External factors

The economic situation in the United States has slightly improved, with the help of unprecedented quantitative easing programs. However, since there have been such large financial aid programs, the effects are not very impressive. In my opinion, the slightest drawback could easily spur the next leg of the economic crisis in the US.

The economic situation in the south of Europe: well, what should I say about that, which you don’t know. The situation is still desperate and will remain so for a prolonged period of time, especially as firm political decisions stay away.

The growth of (Dutch exports to) the BRIC’s (Brazil, Russia, India and China) is nowhere near sufficient, to compensate the difficult situation in the south of Europe for The Netherlands.

Undercapitalized banks

Although the large Dutch banks indisputably made progress with the improvement of their capitalization and equity-to-debt ratio, it is still nowhere near the thresholds that have been set by Basel III.

‘Dead corpses’ floating around at the banks are the large commercial and residential real estate portfolios. These portfolios still have excess book-values, in comparison with the marked-to-market value. 

When CRE and RRE at the banks would be appraised correctly, the financial situation of the banks would be far worse, is my firm opinion. Dutch politicians and supervisors still seem to think: ‘see no evil. Hear no evil’. That thought cannot be maintained until eternity. At sometime, something's got to give.

Housing market

The Dutch housing market is still a drama with an 8% price drop in February y-o-y for existing housing. As I stated in the aforementioned table, over a million houses are underwater (source: CBS). Starters are still intimidated by the high prices of housing and, on top of that, they often don’t get the necessary financing from the banks to buy even a starter's house.

As a matter of fact, there is also still a big discrepancy between available housing and housing required by the market.

The chances for quick recovery of the housing market are that of a snowball in hell. 

Bullet 3

The only driver for jobs that I can think of, currently, is the fact that the baby-boomer generation is starting to retire now. This could cause a slight increase in the number of available jobs in the coming years.

However, many companies in many different industries are still rather getting rid of excess jobs, than that they are looking for more personnel. As we have been in a situation of general over-production for a prolonged period of time, this makes sense.

At best, retiring personnel is replaced by younger workers, but this is nowhere near the driver for new jobs that it should be to spur serious unemployment reduction.

Summarizing, don’t expect the Dutch unemployment to drop soon. It just won’t happen!

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