NL Update - Dutch manufacturing order backlogs show sharp decline

The global economy seems to have lost momentum on the back of high inflation and rising interest rates. Last year, demand became weaker because firms started to unwind excess inventories. This is a temporary phenomenon, but the so-called ‘bullwhip effect’ is unusually strong because after the pandemic, excess inventories were abnormally large, and at the same time, interest rates started to rise unusually fast.

Nevi Purchasing managers index for the Dutch industry indicates decline in activity

A score below 50 indicates a decline

By: ABN AMRO - Source: Nevi

Now, higher interest rates have clearly started to affect investments. Demand for building materials is dropping fast due to dwindling demand for new construction. Demand for machinery and appliances is also weak. The combination of higher material costs, higher interest rates and slow economic growth has made investment much less attractive. Demand for energy-intensive materials, in particular, is weak, as customers struggle to cope with the higher prices and Dutch manufacturing firms face competition from abroad.

Even though some industries still have strong order backlogs, such as the machinery industry and the truck manufacturing industry, firms are still reducing output, presumably because new orders are dropping fast. According to Statistics Netherlands, manufacturing output dropped by 3 percent in April. Preliminary figures suggest that the drop in output was particularly strong in the machinery industry. Unfortunately, the Nevi Netherlands Manufacturing PMI suggests that the downturn is far from over.