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16 March 2018
• We recently revised up our eurozone and US growth forecasts for 2018 and
2019. This, plus the improving economic barometers, also led us to raise
the Dutch growth forecasts
• Vigorous jobs growth will push unemployment to 3½% of the labour force,
the same low level as achieved during the previous boom
• Inflation will edge higher in 2018 as wage growth and rents pick up pace,
before jumping in 2019 when the low VAT rate is raised
This favourable picture will continue to hold sway. Strong global trade growth and
higher government spending indicate that Dutch GDP is firmly on track to rise by
another 3¼% or so this year. The positive mood indicators also confirm that the
1 This figure refers to the GDP series adjusted for seasonal and calendar effects. According to the unadjusted series, GDP rose by 3.1%.
Insights.abnamro.nl/en
2 Dutch Economy in Focus – Economic boom continues – 16 March 2018
economy retained its strong growth momentum in the first months of the year.
Accordingly, we have raised our growth forecasts.
2 4
1 2
0 0
-1
-1 -2
12 13 14 15 16 17 12 13 14 15 16 17
4
3
2
1
0
-1
-2
11 12 13 14 15 16 17 18
In the last quarter of 2017, GDP again advanced 0.8% qoq, mainly driven by residential
investment (+5-6% qoq !), exports and government consumption. Household
consumption showed a surprising decline. Presumably, this was partly due to the lower
energy usage in the autumn when temperatures were higher than normal (and also
higher than in the same period of 2016). In view of the current consumer optimism and
rising disposable incomes, this fall in consumption was probably temporary.
Business investment also flagged in the closing quarter of 2017. The primary cause
was the substantial decline in investments in means of transport, a sector which often
3 Dutch Economy in Focus – Economic boom continues – 16 March 2018
fluctuates strongly between positive and negative numbers. As total exports clearly
outperformed imports, the contribution from net exports (exports minus imports) to
GDP growth was higher than in the previous quarter.
This, combined with the increased growth forecasts for the eurozone and the US (see
below), prompted us to also raise the growth forecasts for the Dutch economy.
Our forecasts for the US were also revised up, as the US administration now looks
likely to raise its spending more than previously thought.
International circumstances thus remain benign for Dutch exports, which can continue
to go from strength to strength. Clearly there are risks, such as protectionism in the
3
US and the fractious Brexit negotiations. These could put a drag on growth.
10 64
5 57
0 50
-5 43
-10 36
-15 29
00 02 04 06 08 10 12 14 16 18
The government will also contribute to extra economic growth, particularly this year,
4
through the additional spending commitments set out in the Coalition Agreement.
Investment is also rising rapidly, largely propelled by bright sales prospects at home
and abroad. Other favourable factors are the high manufacturing utilisation rate (which
5
returned to its peak of 2007 at the start of this year) , low interest rates and high
corporate profits.
Residential investment will clearly decelerate compared to the high growth rate of
6
+13% in 2017, but will remain robust.
In summary, GDP growth can work out at 3.3% in 2018, somewhat above our former
estimate of just under 3%. 2019 will see growth slacken, partly due to the slower
expansion of world trade, but there are no concrete reasons for anticipating a strong
decline. In this light, we have raised our forecast for 2019 to about 2½% (was 2%).
expansion of jobs. On balance, 165,000 people joined the working population in the
course of 2017, including almost 80,000 who were formerly outside the labour market.
1800
1500
1200
900
600
300
0
13 14 15 16 17
Want to work longer hours and available
Looked for work or available
Looked for work and available (unemployed)
Source: Statistics Netherlands
The unused labour potential decreased in the course of 2017 from almost 11% of the
8
potential labour force to 9.5% in the final quarter. We think that there is still a
substantial group of people who can join the workforce or work longer hours.
Unemployment can then fall to the low point reached during the previous boom (ten
years ago), namely 3½% of the labour force - in 2019.
36 8 180
120
27 6 60
0
18 4
-60
-120
9 2
-180
0 0 -240
05 06 07 08 09 10 11 12 13 14 15 16 17 12 13 14 15 16 17
8 Potential labour force: people between 15 and 75 living in the Netherlands (excl. people in an institution).
6 Dutch Economy in Focus – Economic boom continues – 16 March 2018
visible in the rising number of vacancies relative to the number of jobs and also in the
falling number of unemployed per vacancy (see left-hand chart on previous page).
Note, however, that the labour market is not yet as tight as in 2007-2008.
Another indication of the tighter labour market is the growing number of permanent
jobs. Until the third quarter last year, there were more new flexible jobs than permanent
jobs. (We compare the number of jobs with the number four quarters earlier.) However,
the number of new permanent jobs has been rising for some time and, in the last
quarter of 2017, actually outstripped the number of new flexible jobs.
0
11 12 13 14 15 16 17 18
The ever tighter labour market will give wage growth a further impulse, even though
there is still a lot of 'unused potential'.
-1
08 09 10 11 12 13 14 15 16 17
Headline HICP
9 Core inflation: the inflation figure without the (volatile) prices of energy, food, alcohol and tobacco.
7 Dutch Economy in Focus – Economic boom continues – 16 March 2018
For 2018, we foresee slightly higher inflation. One reason is the stronger wage rises
because of the tightening labour market. Another is the fractionally higher rent
increases. The oil price is expected to continue rising, but not much more than in 2017.
In 2019, however, inflation will jump. This is mainly due to the hike in the low VAT rate
which, in itself, will produce an estimated 0.6% point extra inflation. Added to this,
accelerating wage growth will also fuel inflation.
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