The Netherlands: Government resigned while challenges remain

The resulting political uncertainty will delay decisions around challenges for which a lot of money was available, like nitrogen and climate, but we do not expect that it will have a large impact on Dutch GDP for this year or next. Although GDP declined by 0.3% in the first quarter and even though bankruptcies have started to rise (figure 1), we still see demand exceeding supply considering the estimated inflation (HICP) of 5.3% in July. With the unemployment rate remaining constant at 3.5% in June, households continued to spend and their consumption increased by 1.4% y/y in May.

On the supply side some existing challenges remain unsolved. For example on the labour market. The unemployed labour force, adjusted for seasonal effects, has dropped from 372,000 people in 2022Q3 to 350,000 in 2023Q2. At the same time the number of unfilled vacancies increased slightly to 437,300 in the first quarter of the year. This was more than twice as high as the long-term average and well above the number of unemployed workers (figure 2). This is a unique situation for the labour market that has been going on since 2021Q4.

Additionally, one third of Dutch companies mentioned that being unable to find sufficient personnel was the most pressing problem that restricted their production in Q2. This problem is the largest for businesses in security and cleaning services: more than 60% of them responded that labour shortage hindered their production.

Historically the performance of the manufacturing sector is a good indicator of underlying economic dynamics. Manufacturing production has fallen since 2022H2, after it had increased sharply during the Covid pandemic. Around the same time the manufacturing PMI moved under 50, indicating a decline in output. Producer confidence as measured by Statistics Netherlands was 0.1 in June, reflecting a slight positive sentiment on average, but below the long-term average.

Alongside the decline in production, producer prices started to move down too. Both came from very high levels. Producer prices had initially increased very rapidly due to a mismatch between supply and demand induced by Covid (more demand for goods coupled with supply chain disruptions) and increased further due to high energy and input prices related to the war in Ukraine. Since April producer prices are negative in year-on-year terms. This is particularly due to a decline in prices for those sectors that previously contributed most to higher producer prices, like the chemical and oil manufacturing industry (figure 4).

Even though industrial production slightly increased in May by 1.3% m/m (figure 3), we think it is unlikely that production will return to the high levels of the beginning of 2022 anytime soon. Because of the sentiment in the sector, the rising geopolitical tensions and the unusual high demand for goods during Covid. Whether the decline continues or if the sector just moves back to its pre-Covid trend will become apparent in the upcoming months.