Netherlands: Economy picks up steam in the fourth quarter
In defiance of the general European trend of moderating economic growth, the Dutch economy shifted into a significantly higher gear in the fourth quarter. Economic growth came in at 0.5% quarter-on-quarter, up markedly from the meager 0.1% growth rate recorded in the third quarter. The economy was buttressed by firming domestic demand and an improved trade balance. In year-on-year terms, economic growth eased from 2.4% in the third quarter to 2.0% in fourth quarter.
In the fourth quarter, domestic demand picked up pace compared to the prior quarter. Private consumption swung from a flat reading in the third quarter to a 0.5% expansion, benefiting from another drop in the unemployment rate, an increase in employment and elevated consumer confidence amid a stable inflationary environment. On the flip side, Marcel Klok, senior economist at ING, noted that “the labour market is already starting to become a supply side restriction to growth.” Furthermore, government consumption also increased from a flat reading in the previous quarter to a 0.5% expansion, while fixed investment growth rebounded from a 0.1% contraction in the third quarter to a 0.7% increase in the fourth quarter.
Although the trade balance provided a positive impulse to national accounts, the reasoning behind it is less cause for celebration. Exports of goods and services contracted 1.3% over the previous quarter in the fourth quarter, contrasting the 1.1% expansion logged in the third quarter. Exports of both goods and services fell, with the latter contracting at a steeper pace. Meanwhile, imports of goods and services dropped even more sharply in the fourth quarter (Q4: -2.1% quarter-on-quarter; Q3: +1.2% qoq) with a contraction in imports of both goods and services.
Taking into account recently released data for the final quarter of 2018, the Dutch economy grew 2.5% last year over 2017—when the economy expanded 2.9%—on the back of domestic demand as the positive contribution from the external sector moderated.
Looking ahead, the economy is expected to continue growing at a robust, albeit more moderate, pace. Economic growth should benefit from a tight labor market supporting wage growth and private consumption, while the government is set to pursue a mildly expansionary fiscal budget. Nonetheless, downside risks remain present on the external side with the possibility of a flare-up in the trade spat between the U.S. and China following the end of the truce in early March; a disorderly or hard Brexit; trade tensions between the EU and the U.S; and a prolonged Italian recession. Even so, Klok added that “the fourth quarter figure confirms our expectation that the Dutch economy will be able to grow faster than the eurozone average.”