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Thursday, 8 May 2014

Finance Minister Jeroen Dijsselbloem, the Dutch unemployment, the retail industry and the end of the economic crisis, as we know it. A tale of economic propaganda and reality biting …

And do you feel scared, I do
But I won't stop and falter
And if we threw it all away
Things can only get better

Two days ago, the Dutch Finance Minister and current chairman of the Euro-Group, Jeroen Dijsselbloem, had his weekly interview with RTLZ, the business magazine of Dutch RTL television.  

In this interview, Dijsselbloem sided clearly with the growing number of pundits who declared the current economic crisis in The Netherlands over… albeit not for everyone. The following short transcription comes from RTLZ’s May 6. interview with the Finance Minister:

Q: When will the economic crisis be over?

Dijsselbloem: By itself the crisis is over now. We are experiencing economic growth in The Netherlands at the moment. This year’s  economic growth will be approximately 1.2% and last year’s growth was 1.4%. So growth is gaining momentum at the time.

Unfortunately, unemployment takes longer to be solved. We hope that the turnaround will come this year, as for many people the economic crisis still lingers on.

The investments of companies are increasing. With a certain delay this will inevitably lead to more jobs, as more establishments of companies  and more production lines will mean that more hands are needed eventually.

At this moment, companies still have too many people under contract in comparison with their sales revenues. Consequently, we do hope that unemployment diminishes this year, but it is more plausible that this will be next year. The situation should yet be balanced out for companies and people. Employment is traditionally lagging against economic growth.

At this moment growth is increasing considerably, but unemployment is high and the national budget deficit has still not been replenished. Government, companies and households are all busy bringing their balance sheets in order.

Dijsselbloem’s statement about the crisis being over was ‘breaking’ news for many written and broadcasted media. However, we should not ignore his complementary remarks with respect to the context of this statement.

In reality, the crisis is only over for the genuine front runners in the Dutch economy:
  • The national government (from a macro-economic point of view);
  • The banks and insurance companies, which fixed their balance sheets during the last few years and returned to profitability in most cases;
  • The  large, multinational corporations;
  • The larger companies and the small and medium enterprises, with strong ties to exports and business-to-business delivery.

For these groups there are two circumstances, which make their life much easier and raise the profits to pre-crisis levels or even higher:
  • The ample availability of extremely cheap money; 
  • The improving economies in the US and especially Europe, which enable the expansion of Dutch exports;

However, as Finance Minister Dijsselbloem already mentioned: unemployment in The Netherlands is still exceptionally high at this moment, in comparison with 'normal' Dutch circumstances. Especially when you take the awkward situation of the many ‘freelancers without an assignment and income’ into consideration. 

The latter don’t appear in any official unemployment rating and their exact numbers are therefore very hard to estimate. Still, we can safely assume that these freelancers are a massive source of hidden unemployment and sometimes even poverty.

And even the middle class people, who kept their jobs and assignments, generally suffer from stalling or even dropping wages and remuneration fees. 

This stalling income causes that the purchase power of normal middle class households is eroded by the inflation and the ubiquitously increased taxes and levies. Most people spend less, as they simply have less available money to spend.

Consequently, the majority of the middle and lower class households is still on strike, when it comes to consumption out of the ordinary, except for unavoidable investments in household appliances and indispensable consumer electronics. 

The plummeting consumption struck a massive blow to the retail industry in The Netherlands, which could not be mitigated by the people from the highest income groups, who did not stop consuming during the last six years.

Take for instance a look at the following chart, which shows the indexated sales development in The Netherlands since 2005:

Moving average of indexated sales development
for the Dutch retail industry (2005 = 100%)
Data courtesy of:
Click to enlarge
What this chart shows very clearly, is that the value of consumption remained at an acceptable level, due to the 15% in general price increases, which took place since 2005. However, when we look at the average sales volume, we are currently well below 2005 levels of consumption.

As an inevitable consequence, many retailers are in dire straits currently and even former national champions, like HEMA and Ahold, show ‘less than optimal’ results, to say the least. 

And let us not forget that there are two other important nails in the coffin for the retail industry:
  • The Dutch housing market, which still seems in a tailspin of slowly dropping prices and continuous low demand, in spite of the cautious green shoots that emerged in the most promising areas;
  • The excess availability of shopping space for brick-and-mortar stores which leads to murderous competition and cannibalization, pauperizing shopping malls with lots of vacant stores and plummeting margins for the shops that do survive this brutal battle for survival (read also this article).

And now the situation in the whole retail industry and the consumer-oriented small and medium enterprises, is awkward. So awkward, in fact, that it turns Jeroen Dijsselbloem’s statements about the crisis being over into ‘meaningless babble’ and - as a matter of fact - economic propaganda. 

Unless something dramatic happens with the Dutch unemployment and the stalling wages, the outlook for 2014 and 2015 is still very grim for the Dutch retail industry and the consumer-oriented small and medium enterprises. 

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