Dutch economy is increasingly growing under its own steam

Dutch economy is increasingly growing under its own steam

In the years ahead, the Dutch economy is increasingly growing under its own steam, owing to increasing domestic spending. After two years of contraction, the Dutch economy is projected to grow by 0.8% in 2014. Economic growth is expected to pick up further in the years ahead, to 1.2% in 2015 and 1.5% in 2016, thanks to strongly improving consumer and producer confidence. A more pronounced growth recovery will be hampered particularly by moderate global economic expansion. The labour market is also showing resilience, although unemployment remains high. The housing market has bottomed out and is taking a turn for the better. This is indicated by the new half-yearly forecast that De Nederlandsche Bank (DNB) published today.

Domestic spending is taking over as growth driver
Economic sentiment among Dutch consumers and producers has improved markedly since the summer of 2013. Real disposable income is projected to rise by some 2.4% annually in the next two years. This means that domestic spending will also show a more favourable trend this year than it has over the past few years. The contribution of domestic spending to the growth of gross domestic product (GDP) is gradually gaining momentum, providing a broader and more solid foundation for the economic recovery. This year, economic growth will still be driven entirely by foreign trade. In 2015, the contribution of domestic spending to GDP growth should be on a par with that of exports and should even surpass exports in 2016, for the first time since 2008. A more pronounced growth recovery will be hampered by moderate global economic expansion. This means that Dutch exports will grow less vigorously than previously projected.

Labour market is showing resilience, although unemployment remains high
The labour market has shown several signs of recovery these past six months. Unemployment has fallen and employment is picking up again, having declined for two and a half consecutive years. In the course of 2015 the fall in unemployment is expected to come to a halt, partly because more people are expected to come on to the labour market. Unemployment should remain some 2.5% above the estimated equilibrium level in the next two years, which indicates that the Dutch economy is not likely to pick up to full speed in the years ahead.

Housing market bottoms out
Since the summer of 2013, house prices have picked up hesitantly, in September 2014 climbing to almost 3% above their low. These average developments mask differences at a regional level; prices in the major cities are developing more favourably than in some rural areas.

The recovery in the housing market is also being reflected in a strongly rising number of transactions. In the first ten months of 2014, almost 40% more houses were sold than in the comparable period of 2013. The pick-up in the number of housing transactions is related to improved affordability, owing to lower house prices and low mortgage interest rates, the sharp rise in consumer confidence, and catch-up demand from first-time buyers who postponed their purchases in the past few years.

The increased dynamics in the housing market point towards further price rises in 2015 and 2016. On the other hand, there is a very large supply of homes for sale and many mortgages are under water. This is why the projected price recovery remains conservative. In 2014, house prices should rise by almost 1%, picking up by some 1% per year in subsequent years to over 3% in 2016.

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