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Tuesday, 18 February 2014

The Dutch are back in business!! Never mind that there are less jobs, anemic exports, less consumption and a shrinking retail industry, because we have growth!!!

Last Friday, the Dutch Central Bureau of Statistics had good news for The Netherlands: in Q4 of 2013, this country enjoyed a year-on-year economic growth of 0.7%, as well as a quarter-on-quarter growth of also 0.7% after a few years of economic contraction.

Here is the press release by CBS:

  • The Dutch economy grew 0.7% in the fourth quarter relative to the third quarter
  • 8,000 jobs lost compared to third quarter
  • Relative to the fourth quarter of 2012:
    • same economic growth rate of 0.7%;
    • fixed capital formation 5.3% up;
    • exports 0.4% higher;
    • household consumption 0.8% down;
    • government consumption 0.6% down and;
    • 134,000 jobs lost.

According to the first estimate conducted by Statistics Netherlands, the Dutch economy grew 0.7% in the fourth quarter relative to the third quarter. After modest growth in the preceding quarters, the speed of economic recovery is picking up. The number of employee jobs decreased by 8,000 in the fourth quarter compared to the third quarter, but in the third quarter 41,000 jobs were lost. Quarter-on-quarter developments are adjusted for seasonal variation.

Economic growth was also 0.7% relative to the fourth quarter 2012. The number of working days in the fourth quarter of 2013 was the same as in the fourth quarter of 2012.

Fixed capital formation was 5.3% up in the fourth quarter from one year previously. Investments in commercial vehicles, non-residential property, machinery and installations and computers were higher than twelve months previously, but investments in residential property and civil engineering projects were below the level of one year previously.

Exports were 0.4% up in the fourth quarter from the same period in 2012. Exports of Dutch products were 1.5% higher, re-exports 0.2%. Re-exported goods are goods, which are imported and subsequently exported without having undergone any significant processing. Imports were 0.9% below the level of one year previously.
Exports of rubber and plastic products increased notably in the fourth quarter compared to the fourth quarter of 2012, but exports of petroleum derivatives and chemical products declined.

Household consumption on goods and services was 0.8% down in the fourth quarter from one year previously. Household consumption has been in decline for an uninterrupted period of nearly three years now. Household spending on energy and fuels was substantially lower in the fourth quarter than in the fourth quarter of 2012, but households also spent less on food, drinks and tobacco products. Consumers spent more on durable goods like clothes and furniture; passenger car sales were considerably higher.

Government consumption was 0.6% down in the last quarter from the last quarter of 2012. This is predominantly due to reduced spending on public administration. Government spending on care was higher than one year ago.

The value added created by the sectors manufacturing industry and mineral extraction was respectively 2.3 and 2.1% up in the fourth quarter from the last quarter of 2012. The value added created by the sector trade, transport and hotels and restaurants and the construction sector was respectively 1.2 and 0.3% higher. The value added created by sectors information and communication and business services, on the other hand, was respectively  3.1 and 0.2% below the level of the same period in 2012.

In the fourth quarter of last year, 134,000 employee jobs (1.7%) were lost compared to the fourth quarter of 2012.With 38,000, the most substantial decline occurred in the sector care. In terms of percentage, most jobs were lost in the construction sector (8%).

Over the entire year 2013, the Dutch economy showed a negative growth rate of 0.8% relative to 2012. Exports were 1.3% up, but imports were 0.5% down. Investments were 4.9% down. Household consumption and government consumption were respectively 2.1 and 0.7% down. On average, 138,000 employee jobs were lost during the entire year 2013 compared to 2012. Such an annual loss of employment is unprecedented.

Last Friday, it was time for the bulls to make fun of the bears, who were always seeing things too pitchblack, thus missing the fact that the economic sun had started to shine again in The Netherlands. Time to go long on optimism and short on bearish feelings!

Also that Friday, I read on Twitter that the CBS had made some positive revisions on earlier economic data, turning Q2 economic growth from a small decline into a small rise. 

This event led to the CBS being ranted for:
  • having been too pessimistic in their estimates for previous quarters;
  • for seemingly not having the ability to make good economic estimates upon important economic industries, like the ICT industry.

I must admit: this battle seemed clearly won for the bulls (for the superficial readers).

Still, I couldn’t help wondering what was so good about this CBS press release?! That is the reason that I printed it integrally.

The Dutch language has this beautiful, little proverb: “It is easy to fill a child’s hand”. This proverb means that after a period of hardship, a little bit of luck suddenly seems like a lot.

In 2013Q4, the Dutch enjoyed with 0.7% the highest economic growth in Europe.

That is definitely cool, but please let us also look at the other data: 
  • With 0.4%, the exports – ubiquitously seen as the hero of the Dutch economy – showed anemic growth. 
    Besides that, the largest part of Dutch exports still consist of re-exports of imported goods. Especially this category showed with 0.2% y-o-y anemic growth.
  • Investments were up with 5.3%, but – if I read this CBS article correctly – most of this growth was caused by commercial vehicles and non-residential property. 
    With respect to commercial vehicle sales, the increase can largely be explained by the fact that
    some very favourable tax breaks for ‘green’ cars ended in 2013Q4. In my January 2 article, concerning the 2013Q4 car sales in The Netherlands, I predicted doom and gloom for 2014Q1 car sales. I am still firmly behind that prediction, of course.
    And investments in commercial brick-and-mortar are often a prerequisite, but seldomly a driver for economic growth: in order for people to work, companies need office and factory space. However, the office space itself does not produce anything. This makes office buildings an expensive way of locking up investment money.

    The other investments (machinery, installations and computers) do have positive effects on economic growth, as these all will produce new products and services.
  • Household consumption was down by 0.8% year-on-year. This is really a bad development, especially as you see that consumption of fuel, food, tobacco and drinks all were down. The fact that people are saving money on their basic consumption goods, is a tell-tale signal that the crisis is far from over.
    The fact that investments in clothes and furniture were up is positive by itself, but it can point to the fact that people postponed the investments in these categories for a number of years and can’t wait anymore with their investments. 

    Besides that, companies become more and more demanding towards their personnel and proper, representative clothing can be one of the demands towards people in order to keep their job.

  • More than 134,000 jobs were lost y-o-y, since 2012Q4, and the average job loss for 2013 of 138,000 was ‘unprecedented’, according to CBS. 
  • The greenshoots in the manufacturing industry (2.3%) and the mineral exploration industry (2.1%) are by itself very positive, but they have a massive sales loss in the ICT industry of 3.1% at the flipside.

All in all, the economic growth data for The Netherlands in 2013 were still worrisome. Especially, when looking at household consumption, which went down by 2.1% in 2013 and imports, which went down by 0.5%. These are not data that predict massive economic growth soon.

These grim household consumption data were translated in grim data in the Dutch retail industry. Again the CBS:

  • Retail turnover fourth quarter 1.7% down;
  • Negative growth non-food sector slows down;
  • Negligible turnover growth supermarkets. 
In the fourth quarter of 2013, retail turnover was 1.7% down from the last quarter of 2012. The decline is about the same as in the two preceding quarters. Retail prices were at the same level as one year previously. On a quarterly basis, this was the smallest price increase over the past four years, partly due to the fact that the impact of the VAT rate increase introduced on 1 October 2012 is no longer noticeable.

Retail volume was 1.8% down from the fourth quarter of 2012. In the third quarter, retail volume had shrunk by nearly 4% as the most recent figures released by Statistics Netherlands show.

Turnover generated by the non-food sector was more than 3% below the level of the fourth quarter of 2012. Volume declined by nearly 3%. The decline was less substantial than in the third quarter. Prices were on average marginally below the level of one year previously. Home furnishing shops, consumer electronics shops, DIY shops and clothing shops faced further loss of turnover, although less than in the third quarter. Chemist’s shops and household appliances shops recorded a higher negative turnover growth than in the preceding quarter, but textile supermarkets achieved turnover growth relative to twelve months previously.

Well, that is that for household consumption and the retail industry! 

I have argued on many occasions and I will argue once more: there can be no sustainable economic growth in The Netherlands, without a substantial increase in household consumption.

And there will be no substantial increase in household consumption without rising employment and rising remuneration. It simply won’t happen!

Finally: please don’t be fooled by the 2013Q4 growth data in car sales. Don’t see this as a tell-tale greenshoot for increasing consumer confidence.

I am convinced that these car sales will go down by the same or even higher speed in 2014Q1. You can take my word for that!

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