The Netherlands exits its shallow recession

Household consumption expanded significantly (+1.8% QoQ seasonally adjusted) after three quarters of decline, on the back of a high contractual wage increase of 6.9% year-on-year. It provided by far the largest contribution of 0.8ppt to GDP growth in the fourth quarter. Dutch households purchased more domestically and abroad, contributing to the increase in imports. There were more purchases of durable goods and especially of services within the Netherlands, while growth in domestic consumption of food and beverages stagnated.

Government consumption rose as well, albeit at a slower pace (0.4%) than in previous quarters. Employment also increased, especially in public administration and education.

Like private consumption, Dutch international trade also showed the first signs of a turnaround. It expanded mildly after three contractionary quarters, but the net contribution of the trade balance (exports minus imports) to the GDP was close to zero due to a similar increase in imports. The positive trade developments were only visible in goods trade, as service exports and imports contracted. Foreign consumers bought more in the Netherlands, contributing to a rise in exports in the fourth quarter.

As expected, investment contracted for the second quarter in a row, falling by a significant 2.1% compared to the third quarter. There were fewer purchases of transport equipment, but the contraction was more broad-based and investment in machinery, software, housing and commercial buildings also contracted. Only investment in ICT equipment and research and development (R&D) rose. Because businesses still considered inventories as “too large”, an inventory reduction also put a drag on total investment growth and thereby on GDP growth. This also included a reduction in the storage of gas. Looking forward, we expect this investment to contract further during 2024, as higher financing costs will have a delayed negative effect on the cost of capacity expansion.

Among Dutch industries, especially within recreation and culture, agriculture, fishery and manufacturing all expanded. The return of growth in manufacturing is significant since it follows five contractionary quarters caused by high energy prices and weak global trade. The semi-public sector (government, education and health), real estate and business services also improved. Not all was positive, though; mining and quarrying (i.e., oil and gas, related to the closure of the Groningen gas field), the energy supply sector, water and waste, financial services and construction all showed a contraction of value added. Looking at subsectors within manufacturing, the picture is still very mixed as well. Sectors producing investment goods, such as machinery, electronics, and transport equipment, remained in contraction territory.