Soft landing in 2024 for Dutch manufacturing sector?

Almost all indicators point to a further slowdown. New orders continued to drop, urging industrial firms to further reduce output and purchasing of materials, as well as employment.Nevertheless, purchasing managers are by and large optimistic about 2024. Output can be increased this year, thinks 38% of respondents. A minority of 19% expects that output will drop further in 2024. Optimism has waned during the last few months though, due to the difficult economic climate. The last time that optimism was so muted was in October 2022. The optimists look forward to new investment, new client contracts and hope for greater export sales.

Although business activity is dropping fast, the hope for a soft landing is probably not in vain. Even though demand for industrial goods could drop further during the first few months of 2024, a slow recovery might start in the second quarter. The excess inventories that had been built up during the pandemic will probably be unwound by then. Interest rates can also decline now that inflation is coming down. On capital markets, interest rates have already decreased. The European economy is performing weak, which might lead to a further drop in inflation. Therefore, the European Central Bank will probably not raise interest rates any further. The American central bank, the Federal Reserve, announced in December that it expects to cut the interest rate several times in 2024. ABN AMRO expects the Fed and the ECB to cut by 125 basis points in the second half of 2024. Since October, the yield on Dutch ten-year government bonds has dropped by around one percentage point. This might stimulate investment, for example in machinery, which could lead to higher demand for the machinery industry. Cuts of the policy rate might reduce the costs of financing inventories, which could lead to higher demand for semi-finished goods such as metal parts. The recovery will probably be muted since global economic growth is only slow.

ABN AMRO expects that the Dutch manufacturing industry will recover slowly from the second quarter onwards. All in all, there is good hope for a soft landing this year.