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The Central Bureau of Statistics (CBS) has published the figures for Dutch industrial production and they do not yet appear to show a positive picture. Production on the European continent has been in dire straits since the outbreak of the war in Ukraine and the Netherlands is no exception. Why is the industry doing so badly?
Turnover in the Dutch manufacturing industry was 5.5 percent lower in the first quarter of 2024 than in the same quarter a year earlier, according to the Figures from Statistics Netherlands (CBS). As a result, industrial turnover shrank for the fourth quarter in a row. In 2022, strong growth figures were still recorded. In the second quarter of 2022, for example, production was more than 30 percent higher than in the same period last year. These high growth rates were the result of the sharp decline in the corona months. Since 2023, turnover has been declining again. Turnover abroad is declining faster than turnover at home. Last quarter, for example, turnover abroad fell by 5.9 percent, while domestic turnover fell by 4.8 percent.
Industrial turnover has been declining for quarters. Even before corona, turnover was already declining. (Source: CBS)
Output prices also fell, 1.9 percent lower in the first quarter than one year previously. Because total turnover fell more sharply than selling prices, it should be noted that sales of products also declined. The decline in production varies by sector. For example, production fell mainly in the transport sector and among producers of wood and building materials, but also in the food, beverages and tobacco sector. The metal industry is also in extra dire straits. The number of auctions of metal companies due to bankruptcies has risen sharply last year, according to the The Telegraph. The total number of auctions in the sector increased by 53 percent, but that includes companies that voluntarily stop, downsize or move abroad. So that does not give a good picture of the difficulties in the sector. On the other hand, the decision of companies to stop, downsize or move abroad is also reasoned. Also in the Podcasts at {{P3}} several guests expressed their concerns about the Dutch business climate.
On the other hand, there are also sectors that perform well. Turnover in the textile, clothing and leather sector, for example, increased by 1.7 percent. Output prices in the paper industry fell by six percent, while turnover remained the same. So that means that more products have been sold in the sector. A big winner from the geopolitical uncertainty is companies that supply defense. Thales, a company that develops military radar systems, among other things, is growing fast as governments increase investments in defence. The French company is looking for 12,000 additional people worldwide, 400 of whom are in the Netherlands.
There are several reasons for the decline in sales. First of all, a decrease may be the result of a reduced competitive position of the Netherlands. A major reason for this is the high energy prices that have been plaguing Europe since 2022. Economist Han de Jong has repeatedly expressed its concerns about German industry, which is very energy-intensive and has also been struggling with declining production for months. The European sanctions against Russia are politically justifiable, but they are taking a heavy toll on the economy.
On the other hand buy india, the world's largest buyer of oil, Russia cheap energy to keep prices low there. Russia's delivery of at least three million barrels of oil a month to Reliance Industries, one of India's largest companies, is even being paid for in rubles, according to the report Reuters last week. China is also still buying plenty of gas from Russia. Three weeks before the Russian invasion, Putin signed an agreement with the Chinese in Beijing on the supply of gas for the next 30 years. It indicates that Russia foresaw Western sanctions and strategically responded to the situation. Yet, China is Reluctant to become too dependent of Russian gas. The Russians will probably not be able to compensate for all the lost trade with Europe with an increase in gas exports to China.
Buyers are also affected by the reduced competitive position of European countries. Due to the economic growth in China, Chinese suppliers now also have more opportunities to sell their goods to local customers. European buyers are therefore facing more competition from Chinese buyers, according to research by the University of Twente. This in turn can have consequences for the prices and availability of Asian products.
Dutch companies are also struggling with a shortage of personnel and production resources. Only 35 percent of the companies indicate that they do not experience any obstacles to production. For example, many companies are struggling with staff shortages. For every 100 unemployed, there are now 110 open jobs. This may be somewhat less than in 2022, when there were 142 vacancies for every 100 unemployed people, but it still points to a major shortage of staff, especially in the tech sector. Companies also have to deal with too little demand for products.
As geopolitical tensions do not seem to be calming down yet and energy prices will therefore remain high, industry in Europe is likely to continue to suffer. Yet there are also hopeful signs. In May, economic activity in the euro area grew at the fastest pace in the past year, driven by strong demand for services, while the manufacturing sector is showing signs of recovery. The PMI of HCOB, a German bank, rose to 52,3. The PMI also exceeded 50 in the US, Japan and the UK. The PMI is an economic indicator and provides insight into the economic trends in the industry. Values above 50 indicate expansion, while values below 50 predict contraction of the sector.
The European PMI came out with 47,4 still below 50, although the index did increase. Of course, Europe also benefits in the long run from optimism in other countries. In addition, the ECB is expected to lower interest rates next month. Inflation in the eurozone has now risen again and came in at 2.6 percent, while the price increase in April was 2.4 percent. Core inflation also rose to 2.9 percent from 2.7 percent a month earlier. The question is whether the ECB will stand firm and lower interest rates. In that case, the European economy could be boosted again.
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On behalf of Holland Gold, Paul Buitink interviews various economists and experts in the macroeconomic field. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
