The Netherlands: The Tell-tale Signs of an Impending Recession

2 November 2022 12:35

Current economic data suggests a tipping point in the month of September.

Frustrated couple checking bills at home using laptop

In our June forecasts, we predicted that strong economic growth in the first half of 2022 would be followed by a contraction in Q4 of this year and Q1 of next year.

The economic data currently available indeed shows the first signs of a mild recession.

Pessimism prevails among consumers

Consumer confidence struck a record low in September and has not improved at all in October. Apparently, the generous support package announced by the government on Budget Day (‘Prinsjesdag’) has not made much of an impact yet. This makes sense, as most measures will only take effect from January 1, 2023.

Sentiment has also worsened among manufacturers, but the share of optimistic responses still exceeds the share of pessimistic ones by 2.5 percentage points; this is above the long-term average of +1.1 (see Figure 1).

Figure 1: Confidence indicators are down

Source: Statistics Netherlands (CBS)

The economy cools down at the end of the summer

Consumption and production data available from Statistics Netherlands do not yet extend beyond summer – at the time of writing, data is available until the end of August. On a year-on-year basis, consumption and industrial production still show growth, but, month-on-month, we can see the first signs of a cooldown.

Consumption data is not seasonally corrected by Statistics Netherlands, and a small drop in consumption volumes is typical in August. However, this year the decline seems somewhat larger than usual (see Figure 2). The drop was mainly in the consumption of goods, while the consumption of services was rather stable. Our own transaction data – aggregated data of Rabobank’s retail clients – indicates that the decrease in consumption continued in September.

On the manufacturing side, it seems that a period of strong growth came to an end during the summer months, but no sharp decline is visible yet.

Figure 2: Small drop in consumption and IP

Source: Statistics Netherlands (CBS)

September as a tipping point

Our own ‘nowcasting’ model forecasts the start of an economic contraction in September. The model uses not only statistical data, like the data discussed above, but also other indicators, such as internet search terms. Throughout July and August, these indicators were mainly positive (see Figure 3). This means that, all in all, Q3 GDP is expected to be positive.

Figure 3: Contraction starts in September

Source: RaboResearch, based on various sources


Despite the less sunny outlook, it is not all doom and gloom. The number of unemployed rose by a mere 4,000 people in September, keeping the unemployment rate flat at 3.8%. Due to the overall tightness of the labor market, we expect that those who lose their job will be able to find another job relatively easily and that the unemployment rate will only increase slightly.

Furthermore, we are currently treated to unseasonably warm weather, with temperatures in October that are typical for an average month of May (see Figure 4). This lowers household demand for heating. Moreover, many consumers are trying to further reduce their energy consumption. Energy company Eneco reports that, since September, households have been using 20% to 25% less natural gas than normal at current temperatures. The drop in gas consumption means that gas reserves are being depleted at a slower rate, thereby reducing the likelihood of gas shortages in the event of an unusually cold winter.

Figure 4: This year relatively warm – so far

Source: The graph shows the average temperature throughout the month, day and night.