Manufacturing recovery stalls due to weak demand and bad weather
For the first time in four months, circumstances for the Dutch manufacturing industry have deteriorated. The recovery in the second quarter has stalled as the score of the Nevi Netherlands Manufacturing PMI has fallen below the 'neutral' level of 50, from 50.7 to 49.2.
Both production and the number of new orders declined. Foreign demand in particular disappointed. This is probably due to weak economic growth in Europe and elsewhere. The preliminary purchasing managers' index for eurozone manufacturing for July has fallen and now points to a sharp decline in activity.
Germany in particular is doing badly. The preliminary purchasing managers' index for German manufacturing fell from 43.5 to 42.6 in July. Germany is the most important export market for the Dutch manufacturing industry. Respondents to the Nevi Netherlands Manufacturing PMI also attribute the lower output to bad weather. In addition to low demand for cars, among other things, German industry is also struggling with the consequences of flooding.
Last week, for example, Porsche issued a profit warning because an aluminium factory belonging to a supplier had been flooded. Especially in June, Germany has been plagued by extreme rainfall. The disruption of production in German industry is also likely to affect Dutch exports. The declining production of cars in Germany is leading to lower demand for car parts. Hundreds of Dutch companies supply materials and parts to the German automotive industry.
Another important factor is the policy of the central banks. To curb high inflation, central banks such as the Federal Reserve (Fed) in the United States and the European Central Bank (ECB) have been rapidly raising interest rates from 2022 onwards. Although the ECB cut interest rates by a quarter of a percentage point in June, interest rates are still much higher than the average of the past fifteen years. Given the weak economic growth in Europe, ABN AMRO expects a rapid further cut in the policy rate, starting with a quarter of a percentage point cut in September.
One bright spot is that, despite weak demand, Dutch industrial companies are still quite optimistic about the next twelve months. Opinions on future production have even improved slightly. Employment also rose for the sixth month in a row.