Dutch economy growing faster due to higher domestic demand

The Dutch economy will grow by 2% in 2015 and 2016. This is slightly faster than expected, due to a stronger increase in domestic demand. Both private consumption and investment are rising, driven mainly by the recovery in the housing market.

This is the message from the economists of the Economic Research Department (ERD) at Rabobank in the Economic Quarterly Report published today.

Purchasing power is rising

In addition to exports, domestic demand will make an important contribution to economic growth in 2015 and 2016. Björn Giesbergen, Rabobank economist: ‘We expect private consumption to increase by 1,5% both this year and next. Low inflation and wage increases mean higher purchasing power. The same applies to the further increase in employment. In addition, consumer confidence has been rising for some time already.’

Construction and retail benefit from a pick-up in the housing market

Private consumption will rise in 2016 as well because households are increasingly coming out of savings mode, and employment is rising. Giesbergen: ‘The fact that people are saving less is, among other things, due to the easing of the negative equity problem in the housing market as a result of previous repayments and higher house prices. In any case, the pick-up in the housing market positively affects investment in housing and spending on items such as home furnishings and household articles.’

‘Another positive factor for our economy is that for the first time in several years government spending will not put a brake on economic growth. It is even possible that domestic demand could receive an additional boost in the form of lower taxation for private citizens and businesses next year. Unemployment is falling, but remains at a relatively high level due to an increase in the labour supply.’

Headwind for the global economy

The higher economic growth in the Netherlands is contrast to slowing growth in the global economy, mainly due to disappointing performances by the Chinese, US and UK economies at the beginning of this year. There are moreover still risks due to geopolitical tensions, for example in Ukraine and the Middle East, as well as the Greek situation.

The positive expectations for growth in the Netherlands are against a background of relatively weak global economic growth. Economic growth in the United States, China and the United Kingdom slowed down in the first quarter of this year, and while these economies are expected to strengthen over the rest of the year, this will not be enough to completely make up for the weak first quarter.

Eurozone to continue recovery

Remarkably, the eurozone economy is performing well and will continue to recover in 2015 and 2016. Hugo Erken, international economist at Rabobank: ‘The dynamics in the eurozone are powerful enough to offset the slowdown in the growth of world trade. However, the labour market in the eurozone is a cause for concern. We expect only a gradual fall in unemployment this year and next, to 11,25% and 10,75% respectively.’

Erken: ‘The labour market in the eurozone appears to be affected by an increasing mismatch between job seekers and new job opportunities: the number of vacancies is rising, but so far this has not led to a proportional decline in unemployment. Possibly, the unemployed lack the proper knowledge and skills to respond to new job opportunities. For instance, demand for IT personnel is increasing, however a large proportion of the unemployed were previously involved in construction. The problems could also be related to the geographical distribution of jobs and unemployed persons, because the unemployed in the eurozone are not sufficiently mobile to respond to new opportunities for work elsewhere.’

Responses to: Björn Giesbergen