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Friday, 16 May 2014

The Netherlands: positive economic growth figures from 2013Q4 fade away like a mirage in the desert during 2014Q1. Mild winter reputedly did to the Dutch economy, what the harsh winter did to the United States: annihilating growth.

"Yes, it's here. Welcome to the Depression. No, don't drop whatever it is you're doing. Don't get up. It's not going anywhere. It will wait. It's just going to sit over here in the corner and read a magazine while you do whatever it is you need to do.

A Depression doesn't run hot and fierce like some crazed meth burner. A Depression is methodical, purposeful, patient. It will build a shelter out of tree branches and newspaper, light a small, well-contained campfire and wait you out, brother. While you feed on the empty calories of denial and popcorn, it will quietly gather shards of broken dreams and fashion them into a terrible weapon of blunt force reality."

Thursday, May 15th, was the day in which the 2014Q1 growth figures would be presented for The Netherlands and the other European countries. While the Dutch Central Bureau of Statistics (CBS) presented the Dutch Economic growth data, there was at the same time the Quarterly Report by Eurostat.

Especially in The Netherlands, the growth figures were anticipated with great expectations, by many politicians and economic pundits: last week, the Dutch people heard comforting words from Dutch Finance Minister and Chairman of the Euro-group, Jeroen Dijsselbloem.

Dijsselbloem told, during a live broadcast of RTLZ business television, that the economic crisis was finally over and that the Dutch economy would gradually improve, spurred by growing investments of companies:

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.

Today, however, the Dutch CBS had a very sobering message for Dijsselbloem et alumni. The Dutch economic growth had declined with no less than 1.4% quarter-on-quarter and 0.5% year-on-year. The reason for this was reputedly: the very mild winter.

Here is a large part of the CBS press release: 

Domestic consumption and exports natural gas in decline due to mild winter
Economy contracts 1.4% relative to previous quarter
Negative economic growth 0.5% compared to first quarter
Dramatic loss of employment, particularly in care sector
Economy still in recovery stage, despite some negative developments
Investments and manufacturing output up, higher demand for temp workers

According to the first estimate conducted by the Central Bureau of Statistics (CBS), the Dutch economy recorded a negative growth rate of 1.4% in the first quarter of 2014 relative to the fourth quarter of 2013.

In the preceding three quarters the economy had grown. The lower natural gas consumption as a result of the mild weather conditions in winter largely accounted for the negative growth rate. The economy improves further, but the situation on the labour market is still bleak: 32,000 employee jobs were lost in the first quarter relative to the fourth quarter of 2013.

Economy 0.5% in decline relative to first quarter 2013

In the first quarter of this year, the economy shrank 0.5% relative to the same period in 2013. This is largely due to lower consumption, production and exports of natural gas. In the first quarter of 2014, temperatures were exceptionally high, whereas in the first quarter of 2013, temperatures were below average. Despite some negative developments, the Dutch economy is still showing signs of further recovery. Investments increased, Dutch manufacturing industry showed sustained signs of recovery and the demand for temp workers was higher. The shopping-day pattern was the same in the first quarter as in the first quarter of 2013.

If natural gas exports are not taken into account, Dutch exports of goods were nearly 3% up. Apart from agriculture, all sectors performed better. Exports of chemical, electrical and metal products grew notably.

Consumption slows down

On account of the relatively warm weather, the volume of natural gas used by Dutch households was reduced by nearly one-third compared to one year previously. Consumers also spent less on food, drinks and tobacco products, partly because the Easter weekend fell in the second quarter in 2014, whereas in 2013 only Easter Monday fell in the second quarter. The warm weather had a positive impact on the sector hotels and restaurants. Consumers also spent more on durable goods like clothes and electrical equipment.

Investments pick up in construction sector

Investments were higher than one year previously. This was also the case in the preceding quarter. Construction sector investments were significantly higher. The mild weather conditions played a part in this respect. Companies also invested more in machinery and computers, as the capacity utilisation rate and producer confidence increased. Investments in commercial vehicles and company cars were lower than twelve months previously. One of the reasons is the higher tax rate on new motor vehicles and motorcycles (BPM) introduced on 1 January 2014.

Sustained growth manufacturing industry

The recovery process in the sector manufacturing industry continued in the first quarter. Manufacturing output was nearly 4% up from one year previously, partly as a result of higher foreign demand. Apart from the sector mineral extraction and energy supply, only the sector financial institutions recorded a negative growth rate, whereas the construction sector and the sector hotels and restaurants benefited from the mild weather conditions. Horticulture under glass used less natural gas.

Dramatic loss of employment in care sector

In the first quarter of this year, 112,000 employee jobs were lost compared to one year previously. The most substantial loss by more than 3% (43,000 jobs) occurred in the sector health care and welfare. Employment in the care sector has been in decline since the end of 2012, predominantly as a result of reduced employment in childcare and homecare. In the first quarter, 23,000 jobs (6.9%) were lost in the construction sector compared to one year previously. Loss of employment in the construction sector is the result of the fact that output generated by this sector had plummeted in prior years. In trade, transport and hotels and restaurants employment also fell dramatically in the first quarter.

As the demand for temp workers in the private sector grew, the number of jobs in the sector financial services increased by 13,000 from one year previously. A higher demand for temp workers generally signals the first stage of recovery on the labour market. At a later stage, companies themselves  start taking on staff.

Actually, when the gas component would be taken out of the equasion, the remaining data didn’t look so bad at all. Most industries and sectors show moderate to satisfactory improvement.

Also the declined consumption, in comparison with last year, can be partially explained by the late date of the Easter holiday (in April). Besides that, there have been some hopeful signals with respect to the consumption of durable goods and clothing. Perhaps it is indeed a sign that the economy is slowly recovering.   

Only the mindboggling loss of 112,000 jobs in the health care and home care industry, as well as in the child care industry, is really worrisome. This enormous job loss will have an undeniable impact on unemployment among especially women, as they are overrepresented in these kinds of care labour. 

This proofs once more that austerity measures in industries like health care and child care can have undesired, financial side-effects: raising unemployment and, as a consequence, increasing the usage of unemployment benefits and welfare subsidies. It proofs once more that it is not smart to look only at things from a cost perspective alone.

The most peculiar conclusion in the CBS data is, however, that the lower gas consumption and exports caused such a massive slump of the Dutch economy; 1.5% loss of GDP year-on-year is not exactly what I call peanuts. 

That is what is bothering me very much in this data: 
  • In the United States, the harsh winter caused an economic decline;
  • In The Netherlands, it is – counterintuitively – the mild winter, which caused the massive economic decline.

If you have problems with buying the American “winter story”, like I do, then you should also have problems with the Dutch variety of the “winter story”. 

As a matter of fact, I do experience these problems and I slightly mistrust the conclusions of the CBS. Taking the harsh American winter into consideration, you would expect that a mild winter would spur economic activities in export and agricultural behemoth The Netherlands. This obviously does not happen.

At least, it seems that Finance Minister Dijsselbloem has been too premature with declaring the Dutch crisis over, as his interview with RTLZ now seems to explode in his face.

Also yesterday, Eurostat came with their 2014Q1 economic growth data. 

Besides from ‘bad boy’ The Netherlands, the French growth data – or rather the lack of it – were disappointing for many economists, as France is the second economy within Europe.

Here are the contents from Eurostat's press release:

Euro area GDP up by 0.2%, EU28 up by 0.3%
+0.9% and +1.4% respectively compared with the first quarter of 2013

Seasonally adjusted GDP rose by 0.2% in the euro area (EA18) and by 0.3% in the EU28
during the first quarter of 2014, compared with the previous quarter, according to flash estimates published by Eurostat, the statistical office of the European Union.

In the fourth quarter of 2013, GDP grew by 0.2% in the euro area and by 0.4% in the EU28.

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 0.9% in the euro area and by 1.4% in the EU28 in the first quarter of 2014, after +0.5% and +1.0% respectively in the previous quarter.

During the first quarter of 2014, GDP in the United States remained unchanged compared with the previous quarter (after +0.7% in the fourth quarter of 2013). Compared with the same quarter of the previous year, GDP rose by 2.3% (after +2.6% in the previous quarter).

Overview of the Quarterly Economic Results
of the individual European countries
Table courtesy of Eurostat
Click to enlarge
There is a number of countries that you would expect to appear in a negative context in this table, unfortunately. Portugal, Greece, Italy and Cyprus are among those ‘usual suspects’.

More surprising for me, however, were the disappointing results of Estonia, Finland and to a lesser degree France. Especially Finland seemed always to be ‘the powerhouse in the North’, but their quarterly data were very disappointing indeed. It will be interesting to find out what exactly caused this economic slump in Finland

An interesting chart is the one in which the European growth is compared with the US growth in 2014Q1.
Overview of the Eurozone / EU growth during 2014Q1
in comparison with the US growth data
Charty courtesy of Eurostat
Click to enlarge
This chart shows how truthful and even prophetic the words of one of my favorite sages, Kevin Depew of Minyanville, have been: “the depression will wait you out, brother”.

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