Dutch macro perspectives – Growth returns after three consecutive quarters of contraction

The Dutch economy outperformed the eurozone total, which remained stagnant in Q4 (0.0% qoq) and main trading partner Germany, which contracted by 0.3% qoq. The expansion was driven by government spending but primarily by improving private consumption. Indeed, falling inflation and high wage growth has lifted real incomes and raised purchasing power. The labour market remains very tight, with vacancies, which are falling across the eurozone, actually increasing again in the Netherlands in Q4.

Looking at the main components of GDP, external demand improved somewhat after contracting in the first half of 2023. Indeed exports increased (+0.3 qoq) but as imports expanded evenly (+0.3%) net exports did not contribute materially to GDP. Investment continued contracting as expected (-2.1% qoq). As interest rates and financing conditions are still restrictive, and growth prospects for the Netherlands and eurozone still weak, the rationale for investment is low.

The largest positive contributions to growth came from government consumption (+0.4% qoq) and private consumption (+1.8%). Despite the caretaker status of the government, fiscal policy has continued to support growth. The increase in household consumption was expected, given upbeat monthly consumption and retail sales data, but this has come despite negative consumer sentiment. The housing market recovery also raised spending. This qoq increase in private consumption was large by historical standards and therefore risks being revised down. The recovery in purchasing power is expected to continue in the coming quarters on the back of falling inflation and high wage growth. This will contribute to positive private consumption growth over the course of 2024.

Zooming out, today’s data supports our view that growth will be positive but stay sluggish over the course of 2024. More specifically, the growth composition is mixed. External demand is expected to be muted and not contribute to growth until later on in the year when eurozone growth recovers and Germany has bottomed out. Domestic demand will drive growth, supported by government and private consumption, as purchasing power recovers further. We are currently revising our growth forecasts and will include them in our Global Monthly publication, which will be published later this month. (Jan-Paul van de Kerke, Aggie van Huisseling)