Raymond Van Der Putten
BNP Paribas
In Q4, GDP grew by 0.7% and was also 0.7% higher from a year earlier. The economy was in particular supported by investment. However, consumer spending is still weighing on growth albeit less than in Q3. In the coming quarters, growth will be mainly driven by the exports and investment, while consumption is expected to remain sluggish.
The economy performed much better in Q4 than expected. GDP grew by 0.7% and was also 0.7% higher from a year earlier. In Q3, GDP already increased by 0.3%.
Growth was in particular supported by investment. It increased by 5.3% in Q4 from a year earlier compared with -3.7% in Q3. Companies are more willing to invest on signs that the business cycle is improving while financial conditions remain favourable, in particular for large enterprises. Even production in the construction sector strengthened. In Q4, the value added in the sector was 0.3% higher from a year earlier.
Exports decreased in Q4 by 0.1% from the previous quarter and only by a meagre 0.4% from a year earlier. Exports were virtually stagnant in the second half of 2013, despite signs that world trade is picking up.
Consumer spending is still weighing on growth although less than in previous quarters: -0.8% y/y in Q4, compared with -2.7% in Q3. Consumer confidence has considerably improved in the last couple of months. In Q4 it rose to -23, compared with around -33 in Q2 and Q3. In January 2014, it even stood at -9. This remarkable mood change is related to the housing market. House prices stabilised in the second half of 2013. The willingness to buy has improved, as homeowners see light at the end of the tunnel. Another reason is the end in the deterioration of labour market conditions. Unemployment has stopped rising, although it remains exceptionally high at 8.5% of the labour force.
The government austerity policy is also depressing growth. In Q4, government consumption was 0.6% lower from a year earlier. The effects of this policy is in particular notice in the sector culture, recreation and other services, where the value added was 0.9% lower from a year earlier. By contrast, in the government and health care sector, production was actually 0.6% higher than last year.
Despite today’s good results, we expect the economy to grow only very slowly in the coming quarters. Domestic demand excluding investment is likely to remain stagnant or to contract again. The problems in the housing sector will continue to weigh on growth. About 25% of mortgages are “under water”. Households are likely to step up their savings and this will continue to weight on household spending for the coming years. Moreover, government has stepped up its austerity policy by implementing an additional EUR 6 billion savings plan in 2014.
External trade will be one of the bright spots. According to our scenario, the business cycle is set to strengthen progressively in particular in the OECD countries. The growth in exports should also help to stimulate business investment in the Netherlands in the course of 2014. However, the problems in the real estate sector, commercial and housing, is likely to weigh on construction activity.
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