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Wednesday, 22 January 2014

While the politicians and pundits declare the economic crisis ‘finished’, the Dutch themselves become increasingly in arrears. It simply does not figure…

Today, the Dutch Bureau for Credit Registration (BKR) – a non-governmental organization which monitors the Dutch credit supply to individual citizens and their payment behaviour, on behalf of the banks and credit suppliers – presented its barometer for the second half of 2013.

Main conclusion: During the second half year of 2013, more than 20,000 additional consumers ended in arrears on their mortgage, loan or credit line.

Here are the pertinent snips:

During the last half year, there have been more than 20,000 additional customers with an arrears on their loan. At this moment, a total of 740,000 consumers is in financial trouble.

At this moment 8.6% of the consumers registered at BKR has a serious arrears. A half year ago this was 8.3%. Peter van den Bosch, executive director of BKR: ”Especially due to divorce and unemployment, the number of consumers with arrears has risen. Nevertheless, more than 91% of consumers pays back their loan in time”.

Although there are more people in arrears, the consumer becomes more cautious at the same time. “The number of people with a loan declines. Consumers also try to amortize their mortgage more rapidly. Consumers adapt themselves in times of economic hardship”, according to Van den Bosch.

This analysis, by Peter van den Bosch of the BKR, has a positive and a negative note:
  • Positive is that the people become more frugal and as a consequence will become less indebted eventually;
  • Negative is that the number of people in arrears grew rapidly in the second half of 2013. 

The latter seems to be in conflict with the positive vibe that a number politicians and pundits have spread lately.

Of course, I have lots of sympathy for every pundit and politician who declares the crisis over, like Dutch National Bank (DNB) chairman Klaas Knot and others did at the end of last year.

And last weekend, the Minister of Economic Affairs Henk Kamp even stated that the Dutch economy could grow with more than 1.5% per year soon; perhaps already in 2014.

I truly hope that these people are right, but I am fairly sure that they are wrong:
  • Not only for the fact that indebtedness in The Netherlands is probably still rather climbing than dropping;  
  • Or for the fact that the number of people in serious arrears grew with 2.78% in half a year to a total of 8.6%, according to the BKR.

No, probably it is the last paragraph that says it all (see red and bold text): the people became more frugal and started to unwind their indebtedness: 
  • By amortizing their term loans and revolving credit lines; 
  • And by speeding up the amortization of their mortgage; 
  • Or by adapting to the economic headwinds that we all are experiencing. 

In the long run, this is an excellent development: people with little or no debt can start consuming without financial worries again, when the time is right for it. 

At the mid-term, however, this development promises some years of very moderate growth, as the consumers also have to deal with:
  • Dropping prices for their houses;
  • More and higher direct and indirect taxes;
  • Looming unemployment, due to involuntary lay-offs and terminated temporary contracts;
  • And last, but not least: measures of wage restraint and sometimes even wage reduction coming from their employers.

And to be frank: the chance that the export will totally save the day for economic growth in The Netherlands, at the same time that there is a prolonged consumer strike and a crisis among Dutch small and medium enterprises (SME) and retail stores, is that of a snowball in hell. 

It just does not figure!

When the impression of the BKR is correct – and why shouldn’t it be(?) – and the people become indeed more frugal and slowly, but surely less indebted, than the growth of the people in arrears might indeed drop again in a few years.

Nevertheless, that year will surely not be 2014.  

And 2014 will also surely not be the year of 1.5+% economic growth in The Netherlands: scout’s honour!

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