Dutch manufacturing sector maintains rapid growth
The Nevi Dutch Manufacturing PMI fell slightly, from 55.9 to 55.5 in June. The still high score shows that the industry is continuing to grow rapidly.
Domestically, the volume of new orders grew at a slightly slower, but still high pace. The growth in the volume of new export orders picked up for the fourth month in a row. The Dutch manufacturing industry also further increased production. Despite this, many companies were unable to keep up with the increased demand, which led to an increase in order books.
This means that the Dutch manufacturing industry is doing significantly better than in neighbouring countries. S&P Global's preliminary eurozone manufacturing purchasing managers' index came in at just 51.3 in June, indicating a slight improvement in conditions. Purchasing managers in German manufacturing were even less optimistic, causing the preliminary index to fall to 50.0, which does not indicate a deterioration, but also does not indicate an improvement in conditions.
Hoarding behavior not over yet
The hoarding of extra stocks of parts and materials is not over yet. Buyers in the Dutch manufacturing industry again purchased more in June than in May. Purchase prices continued to rise, but at a somewhat slower pace. It appears that the industry is anticipating a recovery in supply chains as the United States and Iran appear to have made progress in their talks on a ceasefire and reopening of the Strait of Hormuz.
The industry remains cautious and is not very optimistic about production in the next twelve months. Supply chains are still disrupted and ABN AMRO expects that it could take months before they are functioning reasonably well again. However, prices are starting to fall, for example for aluminium and naphtha, and it is not unlikely that prices of plastics will also start to fall in the coming weeks. Buyers should therefore be careful when hoarding even more additional stock. After all, they run the risk of buying this extra stock at unnecessarily high prices.
The Netherlands benefits from AI
Despite the depressed mood in the industry, there are signs that the growth of Dutch industry is not only driven by hoarding behavior. The previously identified strong growth in demand for chip machines has probably led to a strong growth in production in recent months. Figures from Statistics Netherlands (CBS) show that calendar-adjusted production grew by no less than 4.7 percent in April compared to the same month last year. This was mainly due to the growth of the machinery industry, which produced 21.6 percent more than last year. Production has been increasing since last summer, which probably explains to a large extent the rise in the Nevi Purchasing Managers' Index since then.
The Dutch figures are in stark contrast to those of the German machinery industry, whose production fell by 2.6 percent in the first four months of this year. The German trade association VDMA does not expect any more growth for the entire year. While the Netherlands is benefiting greatly from the rapid growth of the chip industry due to the presence of a number of large chip machine manufacturers, driven mainly by American investments in data centres for AI applications, German industry is lagging behind due to the ailing automotive and chemical industries. The closure of the Strait of Hormuz has been a boost for some chemical plants, but if the ceasefire holds and supply chains start to function properly again, the structural problems facing the European chemical industry will come to the fore again. The competitive position of the European chemical industry has been under pressure for years, partly due to strict environmental regulations and, above all, high energy prices.
Another risk for the industry is rising interest rates. Short-term interest rates have been rising since the war with Iran, and in June the European Central Bank raised the policy rate. The US Federal Reserve is considering doing the same. Long-term interest rates have also risen somewhat on the capital market, causing chip stock prices to fall sharply on some days. Higher long-term interest rates make financing investments in AI infrastructure more expensive, which makes so-called growth stocks less attractive to investors. Since the beginning of this year, the prices of chip stocks have risen sharply.
Partly thanks to the machinery industry, the Dutch industry is still on course for a strong recovery. ABN AMRO expects growth of 2.5 percent this year.