- 26/9/2024

The Dutch economy rebounds in the second quarter

GDP growth for the first quarter was revised downward to -0.3% quarter-on-quarter and -0.7% year-on-year, due to a re-evaluation of export volumes of goods reflecting the challenging international environment. Germany, a key trading partner, is going through a difficult period. This revision led to a reduction in growth forecasts for 2024 from +0.8% to 0.6%, although the overall economic outlook remains stable. Growth of 1.3% is still anticipated for 2025.

Supported by recovering exports and dynamic public spending, the second quarter was much more favourable. GDP grew by 1% quarter-on-quarter, translating to a 0.6% year-on-year increase, in line with growth in the eurozone. However, private consumption, which has been a key economic driver in recent quarters, could slow if inflation does not stabilise soon.

Inflation: a shadow over recovery

Persistent inflation could hinder recovery if consumers adopt a more cautious stance. Since May, inflation has resumed its upward trajectory, reaching 3.3% in August, with core inflation even higher at 3.7%. Rising rents and food prices are the main contributors to this trend. In response, the Central Planning Bureau revised its inflation forecasts upward to 3.6% for this year and 3.2% for next year.

Positive growth prospects

Despite inflationary pressures, no significant deterioration in economic prospects is expected, thanks to a favourable labour market. Unemployment stood at 3.5% in July, and a large number of job vacancies remain unfilled. A detailed study by the Central Statistics Bureau revealed that about half of the unemployed are still in training, with many seeking part-time work. Unsurprisingly, a third of employers cite labour shortages as the main barrier to growth.

This strong labour market also underpins robust consumer confidence. Combined with low unemployment, it paints a picture of a resilient economy. However, caution is advised: annual export growth has been negative for several quarters, reflecting the challenging international environment. Although imports of goods and services declined less sharply year-on-year in the second quarter, the trade surplus – still substantial at nearly €11 billion in July – has narrowed. This persistent weakness in exports remains a concern, as prolonged declines in foreign demand could weaken the domestic economy.

Strengthening investments

Industrial production fell again in July, marking a full year of declining volumes. This poor performance is likely due to the lagging effects of high energy prices and labour shortages, as noted by many businesses. In this context, strong investments are crucial to mitigate labour shortages and sustain a robust economic base.

However, business investment has been clearly impacted by rising interest rates in 2023. A prolonged decline in investment could weigh on future growth.

A strong rebound in the residential real estate market

Finally, the residential property market has recovered at an unexpectedly strong pace. Prices, which fell by more than 5% in 2023 as the ECB tightened monetary conditions to combat inflation, have returned to positive territory. In July, annual price growth reached 10.7%, making the Dutch residential market rebound one of the strongest in the world.

This sharp price increase once again highlights the density issues facing the Netherlands in its housing market.