Economy - Trends
Again strong economic growth
In 2018, the Dutch economy grew by 2.7 percent. Growth was only slightly lower than in 2017, when the highest growth rate in the span of a decade was recorded at 2.9 percent. Altogether, the Netherlands has seen nineteen quarters of consecutive economic growth.
Labour market is breaking records
The economic growth spurt was also noticeable in the labour market, with the creation of 259 thousand jobs. With the exception of 2007, there had not been a higher number of job gains within one year; employment was up in all sectors apart from agriculture and financial services. Job growth was particularly high in business services, trade, transport, accommodation and food services, and care. These contributed to unemployment falling by 88 thousand, among young people (15 to 24 years) in particular. In 2018, youth unemployment therefore reached its lowest level since 1975.
Job growth meant that more job openings were advertised. By the end of 2018, there were 80 job vacancies for every 100 unemployed. As a result, the labour market was even slightly tighter than at the onset of the economic crisis, when there were 79 vacancies per one hundred unemployed. Tension on the labour market increased significantly over the course of last year. This was also noticeable in terms of entrepreneurial sentiments. One-quarter of businesses say they are affected by staff shortages. These are particularly high among temp agencies and in the sectors trade, transport and ICT.
Growth propelled by consumer
For the most part, economic growth was attributable to domestic spending, consumption and investments. The increase in household consumption was most noticeable and amounted to 2.5 percent, the highest growth in consumption of this century. Consumers mainly spent more on durable items, such as transport equipment and electrical appliances. Spending in the accommodation and food services sector was also up.
Investments contributed nearly as much to economic growth as consumption. Investment was up again in the construction of dwellings and other structures. Furthermore, investments in transport equipment and in machinery and installations saw a substantial increase. International trade made a modest contribution to economic growth. There was significantly less export growth than in 2017.
Of all sectors, construction saw the fastest growth. Business services including temp agencies grew rapidly as well. These were also the fastest growing sectors in 2017. Likewise, the sectors performing less well were similar to 2017. Value added (production minus consumption) contracted once more in mining and quarrying and in financial services. Agriculture was the third sector with decline, following minimal growth in 2017.
Income growth picking up
Contrary to 2017, employment growth was reflected in total Dutch household income. Real disposable income rose by 2.6 percent, which is the highest income growth rate since 2002. Growth is largely due to a higher number of people in work. The contribution of wage developments was modest. Adjusted for price increases, CLA wages were up by only 0.3 percent per hour worked. Since the crisis – from 2009 onwards – disposable household income has increased more rapidly than gross domestic product (GDP).
2018 was an excellent year for the private sector. The number of bankruptcies had not been this low since the start of the century and non-financial corporations realised a record profit of 255 billion euros, over 24 billion euros up on the previous year.
Government finances in order
In 2018, the government achieved a record budget surplus of 11.3 billion euros, equivalent to 1.5 percent of GDP. National debt dropped further partly as a result of this, to 52.4 percent of GDP. This means that government finances fully comply with European standards.
Business cycle past its peak
The economic upturn of the past years was accompanied by high levels of trust among both entrepreneurs and consumers for a long time. This changed suddenly at the end of the summer in 2018. Consumer confidence declined by more than twenty points within six months. In February 2019, it was negative again for the first time in four years. Consumers were more negative about the overall economic situation as well as their own finances. The latter is possibly related to the announced tax increases, for instance the raising of energy tax and the low VAT rate.
Producer confidence went down slightly in the course of 2018 as well, but remained positive. Combined with the somewhat less substantial growth figures in the second half of the year, this means that the economic situation deteriorated to some extent during the last few months of the year. Most indicators of the Business Cycle Tracer are currently situated in the orange quadrant: they are performing above their long-term trend but below the trend of the past period. The labour market indicators, which are always behind in the business cycle, are the only indicators that are still in the green quadrant.
Consumer prices rising slightly faster
In 2018, consumer prices were on average 1.7 percent up on the previous year. This price increase is slightly higher than in 2017, but is still somewhat below the European Central Bank’s 2 percent-ceiling. Consumer prices saw a limited increase elsewhere in the eurozone as well. Manufacturing output prices, on the other hand, rose slightly less rapidly than in 2017. However, price increases were extremely high on the housing market. Prices of owner-occupied dwellings rose by 9 percent on average, the highest increase since 2002. Regional differences in price increases are large: at the end of 2018, house prices in half of all provinces were still below the level of the summer of 2008, just before the start of the economic crisis. In Amsterdam, on the other hand, house prices have risen by over 40 percent in the meantime.