Dutch Economy Chart Book

Transcription

1 Dutch Economy Chart Book Stronger for longer ING Economics Department Amsterdam August 217 (updated forecast table)

2 Contents 1. Outlook summary 3 2. Forecast table 4 3. GDP 5 4. Exports 8 5. Non-financial businesses Consumers Labour market Inflation Housing market Government Sources 2

3 In short It s been more than five months since the general election and there is still no new government. Talks between possible coalition partners are still in full swing. Looking at the current economic situation there is no need to rush though. This year, the Dutch economy is forecast to outpace the Eurozone average for the third year in a row. In 215, GDP expanded by 2.3%, last year by 2.2% and for this year our forecasts pencil in 3.1%. Despite geopolitical uncertainty (Brexit, protectionism), export order books continue to look very healthy. Re-exports and domestically-produced exports are both performing very well. Business confidence is the highest in eight years. Profits of non-financial businesses are rising and the number of bankruptcies is at pre-crisis lows. Investment has increased strongly in recent years and has recovered most of the lost ground. Spending by businesses has returned to 28 levels. The increase in residential construction remains above average, but after double-digit growth in the pace will slow. Households are set to increase their spending further. Confidence is high and consumers view it as a very good time to make large purchases. Disposable income is rising, helped by the stronger labour market. Increased confidence will induce consumers to spend more of their increased income. Meanwhile, the housing market remains an important growth engine, but it will throttle back a bit. The number of house sales is at a record high and mortgage rates have started to creep higher. Supply is also starting to run dry, especially in large cities. Despite three years of above-average growth rates, the economy is not yet back at its potential output. Unemployment is falling rapidly, but there is still slack in the labour market. Labour participation has declined and wage growth is still only moderate. The negative output gap keeps a lid on the rise in core inflation. The increase in Inflation is largely driven by higher energy prices. Government finances are improving rapidly. Ahead of forecasts, the budget showed a surplus already last year and debt dropped below 6% in 1Q17. 3 Summary <<

4 ING forecast table The Netherlands per cent change unless otherwise noted Demand and output* Gross domestic product Private consumption Government spending Investment of which private Net exports (%-point contribution to GDP) Labour and housing market Employment (in hours worked) Unemployment (% of labour force) House prices Existing home sales (in s) Government finances Government budget (% of GDP) Government debt (% of GDP) Prices and rates Inflation (HICP) Euribor, 3 month (% eop) Dutch gov't bond yield, 1yr (% eop) * Not adjusted for working days Forecasts as of 24 August 217 (interest rates as of 3 August, 217) 4 Forecasts <<

5 Dutch economy continues to outpace Euro area core From growth laggard to leader Gross domestic product, volume, change year-on-year, in % 4 No more drag from housing In s 25 and austerity has faded Budget effect, in billions 15 3 Including negative gas effect on growth (-.4ppt) Netherlands Nederland Belgium Duitsland België Frankrijk Germany France Existing home sales New policy measures Old measures (from prev yrs) Total 5 GDP <<

6 Domestic demand is the key growth engine Strong growth trend in GDP per capita Index, 28 = Domestic demand remains main growth engine in Contribution to GDP growth, in percentage points forecast GDP per capita Private consumption Private investment (incl. stocks) Government Exports (net) 6 GDP <<

7 Economy is still closing the output gap Growth is above trend, but the economy is not yet running at full potential Change year-on-year, in % (lhs) Difference between actual and potential GDP level, in % of potential GDP (rhs) 8 4 forecast Actual GDP growth Change in potential GDP Positive output gap Negative output gap 7 GDP <<

8 Exports Despite stagnating world trade growth, the volume of Dutch exports continued to increase steadily in The weakness in world trade was largely driven by emerging markets, but that s not the main Dutch export destination. Relevant world trade maintained its pace. Exports from the Netherlands are heavily focused on developed markets in Europe and the US. Re-exports have posted the strongest growth, but exports of domestically-produced goods have expanded too. Strong order positions point to further growth in the coming months. In nominal terms, the export growth was less impressive. This was caused by falling commodity prices. Between 213 and 2Q16, Dutch exports of energy products declined by more than 5%. Exports of high-tech products offset part of the decline in energy exports. The recent rebound in oil prices has pushed the current account balance back up. Income on Dutch FDI is tightly linked to oil revenues. Internationally, the Dutch national savings surplus is still very high. Brexit is the main risk to the export outlook. In value added terms, the UK accounts for 8% of Dutch exports. So, a slowdown of the British economy will not go unnoticed. Additional pressure on Dutch exports comes from the government s decision to further lower the maximum allowed gas production in the Northern Province Groningen. Unless 217 turns out to be a very hot year, the 1% reduction in production leaves less gas for foreign markets. 8 Exports <<

9 A very competitive economy: Dutch are ranking high WEF Global competitiveness Index Global Innovation Index Network Readiness Global Enabling Trade Report Logistics Performance Index Ease of Doing Business Corruption Perceptions Human Development Prosperity Index Position in 21 All rankings from Exports <<

10 Main trading partners of the Netherlands Imports Share, turnover Exports Share based on turnover Share based on value added 17% 1% 9% 23% 1% 9% 17% 8% 8% 9% Goods (215): Goods (215): 8% 7% 6% 383 bn 427 bn 4% 5% 4% 4% 5% 4% 3% 4% 3% 2% 2% 2% 2% 2% 2% 2% 2% 1 Exports <<

11 Almost 6 billion of Dutch exports Mostly goods, but more than a quarter now consists of services In billions of euro Goods (73%) Services (27%) Agri exports are dominated by domestically produced goods, high-tech is mostly re-exports Share of domestically produced goods in exports, per category agri energy chemicals low/mid-tech high-tech 11 Exports <<

12 Nominal exports have increased again, helped by higher oil prices Recent pick-up in nominal exports, after long flat period Per month, in billion, seasonally-adjusted Rebound in energy exports, steady increase in high-tech Per month, in billion, seasonally-adjusted Total monthly exports, goods Agri Chemical High-tech Energy Low-/mid-tech 12 Exports <<

13 Rebound in oil price pushes current account surplus back up Current account surplus has rebounded % of GDP, seasonally-adjusted 16 Income balance dominated by Shell-effect % of GDP /barrel Lower oil prices have impacted Shell s revenues, and thus income on Dutch FDI Trade, goods Trade, services Income balance Current account Balance in transfers Income balance Oil price (rhs) 13 Exports <<

14 In volume terms, Dutch exports have outpaced world trade Dutch exports rose faster than world trade volume Index, 21 = 1 14 Sharp rise in re-exports, but made in NL higher too Index, 214 = World trade volume Exports of goods, constant prices, Netherlands World trade volume Re-exports, the Netherlands Domestically-produced exports, the Netherlands Exports <<

15 Risk: NL could be hit relatively hard by Brexit Sensitivity to UK: NL ranks third within EU % of total added value dependant on demand from UK Dutch sectors that are most exposed to the UK 6 4 Wholesale Transport EU average 2 Ireland Malta NL Belgium Germany Industry Business services 15 Exports <<

16 For now, exporters are still very positive on outlook Industrial export order books are filling up Index 7 Base case: steady growth in main export markets Change year-on-year, constant prices, in % 15 6 Long term average forecast NEVI/Purchasing Managers' Index export orders Merchandise exports, the Netherlands Industrial production in main Dutch export markets* * Proxied by Eurozone, UK, US and China. Share in Dutch exports used as weights 16 Exports <<

17 International competitive position has improved Since mid-216, euro up against GBP, unchanged vs USD Currency per euro index, 21 = 1 Dutch competitiveness has, on balance, improved since 28 Index, Q = Nominal trade-weighted euro, Netherlands (right) USD per euro GBP per euro ECB Harmonized Competitiveness Index, based on CPI ECB Harmonized Competitiveness Index, based on unit labour cost 17 Exports <<

18 Non-financial businesses In 216, almost all major market sectors further increased their production levels; a trend that is likely to continue in 217. Most sectors have recovered to pre-crisis levels. Main exception is the construction sector, which is still some 7% smaller than in 28. The gas sector (3% below 28) was hit by the decision to lower the maximum allowed production in 215. In gas year , the production will be lowered further. The financial situation of companies is improving. The number of bankruptcies has dropped back to levels last seen ten years ago. Pre-tax profits of non-financial companies hit a record high at the start of 217. These numbers are, however, skewed by income from foreign affiliaties. The gross operating surplus which excludes FDI income paints a better picture of profitability in the Dutch domestic market. The profit ratio operating surplus as % of valued added has improved too, but it s still below 28 levels. Indicators show that the economic recovery is gaining a firm foothold among SMEs. Smaller firms now also report, on balance, higher profitability, but their recovery clearly lags that of larger companies. Investment levels have increased strongly in recent years. Private investment excluding dwellings (as a percentage of GDP) is nearing its previous peak. The combination of higher output levels and rising profits induces companies to continue to step up investment, but at a slower pace than in previous years. Spending on vehicles and machines is back near 28 levels, while ICT-related investment is even over 3% higher, mainly driven by investments in software. Investment growth in the commercial services sectors has started to normalize. After a sharp drop in , residential construction rebounded very strongly; in 215, by almost 3% and in 216 by a near 2%. This year, residential investment is expected to increase further, but the pace of growth is set to slow to around 1%. 18 Business <<

19 All sectors, bar construction and gas, have recovered to 28 levels Goods-producing sectors: mixed picture Output, index, 28 = 1 Commercial services: trending up Public services: stable Gov t has lowered maximum allowed gas production Agriculture Mining/gas Real estate Wholesale* ICT Government* Education* Manufacturing Construction Transport Other Retail* Health care* Culture, sport & recreation* Hospitality * No quarterly data available 19 Business <<

20 Higher profits for non-financial companies Total profits (incl foreign affiliates) in euro s at a record high, but In euro billions, seasonally-adjusted 6 margins on domestic operations still average Gross operating surplus as percentage of gross value added Pre-tax profits of Dutch non-financial companies Profit ratio, non-financial companies Profits of foreign affiliaties of Dutch non-financial companies 2 Business <<

21 Recovery is filtering through to smaller firms SMEs: more confidence and improved finances Net % of firms reporting improvement (+) or deterioration (-), NSA Positive trend in profitability Net % of firms reporting higher (+) or lower (-) profitability in last 3 months ING Sentiment Index for SMEs (ING OndernemersIndex) Financial situation in last 12 months 5 to 2 employees 2 to 5 employees 5 to 1 employees 1 or more employees 21 Business <<

22 Fewer bankruptcies Number of bankruptcies at multi-year lows Per month, seasonally-adjusted Declines in all sectors, strongest in construction and trade Bankruptcies per month, 6M moving average Bankruptcies per month Comm services (right) Construction Trade Industry Transport Hospitality Public services (incl health) 22 Business <<

23 Business investment has recovered, construction not yet Total investment recovering, private investment near peak... As % of GDP 25 helped by steady uptrend in ICT investments Index, 28 = Total investment (private + public) Private investment, excluding dwellings Dwellings and other buildings (including roads, waterways, etc) Machines and transport vehicles Software, computers and R&D Business <<

24 Further investment growth, but at slower rate Industry expects to invest more % change in fixed investment Percentage of firms but need for extra capacity has eased Growth in comm. services normalizes Index, dev. from LT-average Change YoY, in % Expected increase in investment Actual Industrial firms reporting shortage of materials and/or equipment as main limit to production Business confidence (left) Investment volume (right) 24 Business <<

25 Stronger demand for bank credit Credit standards have been eased slightly for large firms Net percentage of banks reporting tighter (+) or eased (-) standards 1 5 tightening Credit demand from SMEs has started to pick up Net percentage of banks reporting stronger (+) or weaker (-) demand 1 5 stronger -5 easing SMEs Large firms -5 weaker SMEs Large firms 25 Business <<

26 Consumers Spending power has risen strongly in the past two years, helped by more jobs, higher wages, near-zero inflation and tax cuts. However, households did not react by boosting their spending at an equal rate. Part of the income increase was put aside or used to pay down on mortgages. Debt is still rising, but at a much lower rate than previously. Households are deleveraging the soft way (also see slide 58). Confidence is high. Consumers are above-average optimistic about the general economic climate and willingness-to-buy is now also above the long-term average. Consumers currently view it a very good time to make large purchases. The increase in confidence is largely driven by younger people. Sentiment is buoyed by strong job growth. As a result of the strong confidence, households are stepping up their spending pace. Spending on both goods and services is rising. Within the goods category, electronics are the standout. In line with the recovery in home sales, housing-related spending is also picking up. The recovery in clothing and cars has remained muted. Total net wealth of households has hit the highest level ever recorded. However, most of the increase in non-liquid assets, such pension assets and housing wealth. 26 Consumers <<

27 Consumers confidence strikes post-crisis high Consumer confidence highest in 9 years Standardized index 3 Especially younger people are full of confidence Consumer confidence, index Consumer confidence index All ages Economic climate years Willingness to buy Consumers <<

28 More spending power After 4 yrs of decline, purchasing power is rising Change year on year, in % 6 Increase in overnight deposits points to higher spending Inflation-adjusted index, 21 = Static Dynamic (adjusted for changes in type of income) forecast Overnight deposits, total balance of households (5M lead) Non-food retail sales, excluding fuel 28 Consumers <<

29 Private consumption growth is gaining traction Increased spending on both goods and services Breakdown of consumer spending, 215 Private consumption by type, volume index, 28 = % of total vehicles electronics other fuel gas & water 11 housing 1 furniture clothing alcohol & tobacco 15 3 bn (1%) 57 hospitality & recreation Total Goods Services Services food Durable goods other transport & comm. health financial Food, beverages & tobacco Energy/fuel 29 Consumers <<

30 Consumer spending trends Services: more on housing and health Index, constant prices, 28 = 1 14 Health Electronics surge, food edging higher 13 Electronics Durables: cyclically-driven uptrend 11 Clothing Housing 9 Vehicles 1 Financial Hospitality & recreation Food 1 Energy & fuel Housingrelated Consumers <<

31 More and more online Double-digit rise in online sales volumes Retail sales volume, change year-on-year, in % 2 1 Number of web shops up, traditional stores down In thousands Change since 27 +3k -5k Food Traditional shops Non-food (excl webshops) Post order/webshops Post order / web shops 31 Consumers <<

32 Rapid increase forecast in share of web shops in retail turnover Share of online* in total retail turnover, per segment food electronics living (home & garden) toys clothing media & entertainment shoes * online = web-only shops and web shops of traditional (physical) stores Source: Thuiswinkel.org / Gfk, ING forecasts 32 Consumers <<

33 Income has increased slightly faster than spending Household income has increased faster since 214 In billions of euros 33 Income > spending = higher saving rate 1 pushing free savings rate back towards positive territory % of disposable income Positive saving rate = increase in wealth -2 forecast Total household disposable income Free savings (income less spending) Consumer spending Mandatory savings (pension premiums less payouts) 33 Consumers <<

34 Households are taking up much less debt For a long period, debt increased much faster than liquid assets, but that has changed In billions of euros 3 Line shows changes in wealth due to financial transactions (price/valuation change are excluded) Change in financial assets, excluding pensions (i.e. bank accounts, stocks, bonds, etc.) Change in wealth (excluding pensions) Change in debt (mostly mortgages) 34 Consumers <<

35 Total net wealth increased further during crisis Increase in pension assets has offset temporary decline in housing wealth In billions of euros Total net wealth at record high In billions of euros Non-financial wealth (mostly dwellings and land) Insurance and pension entitlements Other financial assets Debt Total net wealth (financial and non-financial) 35 Consumers <<

36 Labour market Employment growth has accelerated in recent quarters. The number of jobs is now higher than it was when the crisis hit the economy. In terms of total hours worked, the labour market has recovered too. Leading indicators point to further growth. The number of unfilled vacancies is the highest since early 29, but it is not yet as high as in 28. Sector-wise, temporary job agencies have been the driving force behind the increase in jobs. This reflects the strong rise of flex workers in the workforce. Industry and construction have experienced strong demand for flex workers. The drag from the public sector (incl health) on the labour market the result of austerity has come to an end. The unemployment rate is falling rapidly. All age groups show a decline. Despite the strong improvement in the labour market, there is no sign of overheating. Wage growth is moderate and there is more slack in the labour market than the unemployment data suggests. In addition to the near 5k unemployed, there appears to be potential labour supply of at least about 3k men and women. Since the start of the crisis, the gross participation rate has declined from 71% to 7%. The decline in labour market participation has been strongest amongst males of 25 to 45 years old. Before the crisis, there was a very strong uptrend in participation. 36 Labour <<

37 Employment is rising Number of jobs above pre-crisis level, also in hours worked Millions vs now: more jobs in services Share in total employment, in % Public +4%-point Health, government, education Comm. Services +5% Financial, IT, advice (legal/mgt./tech), temp job agencies 3 4 Agriculture -1% Farming, forestry, fishing Industry (inc. energy) -4% Food, metal, chemical, machinery 7 24 Construction -1% Trade -2% Retail (incl auto), wholesale, hospitality Total employment, number of employees and self-employed people (left axis) Employment in total hours worked (right axis) 37 Labour <<

38 More work, mostly flex Number of fixed and flexible contracts is increasing Contribution to quarterly change in labour force, in percentage points.8 Job growth driven by commercial services, public no longer drag Contribution to yearly change in employment, in percentage points Total employed labour force Employee, fixed Employee, flex Self-employed w/o pers. ( zzp ) Other (eg, self-employed with employees Public Industry Construction Trade/transport Temp agencies Other sectors (eg, business services, IT, finance, real estate) Labour <<

39 Leading indicators point to further job growth Consumers and firms have positive expectations Index, standardized Unfilled vacancies and temp hours are still rising Index Quarterly change, in % Businesses employment expectations* Vacancy indicator (left) Consumers unemployment expectations (right axis, inverted) Temp hours worked (right) * Weighted average of manufacturing, construction, retail and services 38 Labour <<

40 Steady drop in unemployment Unemployment still markedly above previous lows As percentage of labour force Lower unemployment in all age groups Share of unemployed in labour force, in percentage Unemployment rate (harmonized) Aged Long-term average ( ) Aged Aged Labour <<

41 Labour market is getting tighter Number of unemployed persons per open vacancy has fallen significantly, but not yet as low as in 28 Ratio Labour <<

42 In most sectors, labour shortage not yet as acute as in 28 Percentage of firms reporting shortage of workers (note: charts do not have same axes) Industry Real estate services Construction Transport (over land) Agri Wholesale Hospitality 2 1 Retail Mgt. consult. Legal serv IT Marketing Rental serv. Temp job agencies Labour <<

43 Lower labour participation points to hidden potential supply Potential labour force has outpaced actual labour force Index, 29 = 1 16 Since start of crisis, participation rate has, on balance, fallen Actual labour force as percentage of potential labour force aged % % % Reasons for withdrawal: - Discouraged - Study/re-training - Care-taking - Sick/disability Potential labour force (aged 15-74) Gross labour participation rate, aged Actual labour force (aged 15-74) 43 Labour <<

44 Extra potential labour supply of around 3k people Male participation rate has dropped Actual labour force as percentage of potential labour force aged % 76 75% Strong upward trend in female participation rate stalled Actual labour force as percentage of potential labour force aged % 6 65% K extra men if participation returned to 77% 15K extra female if participation rose to 67% Number of males active on the labour market, in millions Number of females active on the labour market, in millions Assuming part. rate of 77% Actual +15k Assuming part. rate of 68% Actual +15k Labour <<

45 Inflation Consumer price inflation has started to creep up in recent months, from % YoY in 2Q16 to currently just over 1.%. In the same period, the European harmonized inflation measure (HICP) rose too, but slightly less strongly. The HICP excludes the cost of owning a home, which is currently rising faster than the average inflation. After.3% in 216 on average, full year inflation is set to rise to 1-1.5% in 217. HICP is forecast to rise from.1% to just over. The recent increase in inflation is largely due to higher commodity prices feeding through into retail prices. While fuel prices respond to changes in oil prices with hardly a delay, retail gas prices in The Netherlands are set only twice a year. In addition to this lagged effect of oil on energy tariffs, higher wages are slowly pushing up services prices. According to surveys, inflation expectations are very slowly rising, but consumers and businesses do not expect hefty increases. Underutilization of the economy keeps a lid on the increase in core inflation. Inflation excluding food and energy is expected to remain below 1% in 217 and only edge above 1% in 218. Core inflation is further held low by rents. This component accounts for about 2% of total consumer price inflation. Current developments in rents are linked to the previous year s headline inflation rate. As a result, near zero percent inflation in 216 helps to keep the 217 rate low. 45 Inflation <<

46 Inflation expectations are still muted Inflation is creeping higher from low levels % year-on-year Net % of respondents and consumers and business do not appear to expect a strong rise Headline consumer price inflation Core inflation Consumer price expectations for next 12 months Companies selling price expectations for next 3 months (weighed average of industry, retail and services sector) 46 Inflation <<

47 Inflationary pressures are slowly building Earlier rise in commodity prices could feed through Change year-on-year, in % 9 and wage costs are rising Change year-on-year, in % Catch-up after period of wage freeze Energy Raw materials Industry Comm. services Agricultural Metals & minerals Construction Non-comm. services 47 Inflation <<

48 Increase in inflation largely due to more expensive energy Headline inflation rises slowly Contribution to consumer price inflation, in percentage points 4 Total CPI energy fuel food/bev/alc other rent core forecast 48 Inflation <<

49 Housing market Since the trough of 213, the economy has expanded by 8%. The pick-up of the housing market explains at least a quarter of this recovery. Investment in dwellings has surged 7%, benefitting builders, industry and DIY stores. The number of home sales has more than doubled. Estate agents, surveyors, notaries, lenders, mortgage advisors and furniture shops reap the benefits of this. Home buying activity hit a new record high in 2Q17 and this has pushed supply of existing homes to very low levels. About 2.5% of the total owned housing stock is currently being put up for sale. In large cities such as Amsterdam, Haarlem, Leiden and Utrecht this is even less than 1.5%. At the peak, supply was 5.5% of the stock. Regionally, all provinces have shown double-digit increases in home sales since the low point of 213. In regions where the population is ageing faster, the increase has been held back. Meanwhile, in large cities, the very low supply has already led to fewer transactions, but the level is still high. The mixture of strong demand and low supply warrants further house price increases. In 2Q17, prices rose on average by close to 8%YoY. Compared to pre-crisis levels, most regions have ample room for further increases. Nationwide, prices are still 8% below the 28 peak. In Amsterdam, prices are already over 2% above the previous peak, but there the foundation for significant price increases is eroding. In 217, housing remains an important growth engine, but it will shift a gear down. The low number of new building permits is holding construction back. Capacity constraints (too few building locations, low capacity with developers) will cause investment in housing to expand at a lower rate. In addition, higher mortgage rates could result in lower sales numbers in 218. Housing affordability has already started to weaken, but it remains favourable compared to 28 levels. 49 Housing <<

50 Home buying activity at record levels Housing market sentiment has improved strongly Index, 28 = pushing homes sales to record high levels Monthly sales, seasonally-adjusted, annual rate, in thousands Housing Market Indicator VEH (homeowners association) Google searches for hypotheek (= mortgage) Existing homes New homes 5 Housing <<

51 Affordability has started to weaken, but still better than in 28 Housing affordability has deteriorated slightly After-tax mortgage cost as % of income, directly after purchase* 4 Mortgage rates have edged higher from historic low levels In %, by fixed interest duration Bad affordability Good affordability '7 '8 '9 ' '1 1 '5 '7 '9 '11 '13 '15 '17 Annuity mortgage 1% interest-only Repeat home buyers First-time home buyers Mortgage rate, average all durations Up to 1yr 1 to 5yr 5-1yr >1yr * Using average house price and average household income. Since 213, interest on new mortgages is only tax deductible for ammortising mortgages. 51 Housing <<

52 Broad-based surge in home sales, but largest cities lose steam North & east: trend is still up Index, 213 = 1 3 South & west: fewer sales in Randstad Index, 213 = Fall in sales in Utrecht and N- Holland (A dam) Groningen Friesland Drenthe Overijssel Flevoland Gelderland Utrecht N-Holland Z-Holland Zeeland N-Brabant Limburg 52 Housing <<

53 Supply is becoming tighter Unsold existing supply at pre-crisis lows Available housing supply versus monthly rate of sales, in months 4 while new supply picked up from record lows Index, 28 = For sale Total building permits 53 Housing <<

54 Historical house price trends In real terms, Dutch house prices are still significantly below the last peak Index, adjusted for consumer price inflation, 197 = % Herengrachtindex -5% 1 5-8% National house price index Housing <<

55 Large cities lead house price recovery Northern & eastern provinces Index, 28 = 1 Western & southern provinces Largest cities Groningen Friesland Drenthe Overijssel Flevoland Gelderland Utrecht N-Holland Z-Holland Zeeland N-Brabant Limburg Amsterdam The Hague Rotterdam Utrecht National average 55 Housing <<

56 Sharply lower price-to-income in NL Price-to-income in Sweden and the UK far above long-term average, NL and Denmark not so much House price-to-income, deviation from long-term average, = Sweden UK Netherlands Denmark Euro area US Housing <<

57 Measures have been taken to curtail mortgage debt growth Households are only allowed to deduct interest payments on the mortgage up to a maximum period of 3 years Interest payments resulting from mortgage equity withdrawal cannot be included in the tax deduction Intro. code of conduct (cost of living ratios, reference rate for mortgage with interest rate <1yr) Tightening code of conduct (max 5% interest-only) Interest on new mortgages only tax deductible for amortising mortgages (annuity/linear mortgage) Max loan-to-value gradually lowered from 16% to 1% in 218 For the higher income tax bracket, tax deduction will be gradually reduced from 52% to 38% in Housing <<

58 Mortgage debt is falling, in relative terms Debt levels are falling as income rises and households have increased pre-payments Mortgage debt as % of household disposable income Housing <<

59 Government Government finances are improving rapidly. Ahead of forecasts, the budget already showed a surplus last year (+.4% of GDP); the first since 27. Debt is dropping fast too. In the first quarter of this year, government debt fell below 6% of GDP. Not only current finances look stable, as a result of major reforms, the long-term sustainability of the government finances appears favourable too. It s been more than 3 months since the general election and there is still no new government. In order to implement new policy in 218, a new coalition agreement needs to be cut-and-dried well before Budget Day (third Tuesday of September). This deadline is unlikely to be met. Talks between the VVD (Liberals), the CDA (Christian Democrats), D66 (Democrats) and GroenLinks (Greens) collapsed. The VVD, CDA and D66 together dubbed the engine block are now talking with the Christian Union (CU) to try to reach a majority. Parties seem determined to come to an agreement. If this failed too, a minority coalition or new elections would be considered. International organizations such as the European Commission, the IMF, the OECD and the European Central Bank have encouraged the Dutch government to increase spending. Despite ample fiscal room to do so, the appeals have not been met with great enthusiasm from the Dutch. Extra spending by the Dutch could be seen by other countries as a token of goodwill towards Europe. The Dutch government probably is only willing to significantly boost spending when economic growth slows down. In that case, the Netherlands appears to have much more fiscal room to keep the economy afloat than most other European countries. Against this backdrop, the Dutch economy should be able to continue to outperform the Eurozone average. 59 Gov t <<

60 Dutch government bond yield still at historically low levels Yield on Dutch 1-yr government is still very low Yearly average, % 14 despite a recent pick-up jul-15 jul-16 jul-17 Yield on Dutch 1yr government bond Long-term rate 6 Gov t <<

61 Low spread versus Germany Yield spread with Germany back at low levels % Fall of Rutte-I Gov t <<

62 Budget surplus Income has exceeded expenditures again In euro billions, per quarter, seasonally-adjusted pushing the fiscal balance back into positive territory As % of GDP, seasonally-adjusted European target Government expenditure Government revenue Actual balance CPB forecast European Commission forecast 61 Gov t <<

63 Revenues have increased Income & company taxes are surging as are social contributions but gas revenues have plunged 4Q sum, in billion euros. Note that chart on right-hand size has different axis VAT/excises Income and company tax Other taxes Contributions, employees etc. Contributions, employers Sale of products and other income Income on wealth (mainly gas revenues) 62 Gov t <<

64 Government expenditures have, on balance, been stable Social security cost are rising and civil servant wages have picked up but interest payments are in decline 4Q sum, in billion euros. Note that chart on right-hand size has different axis 8 8 4Gauction* Health Income Old-age Other Investment & consumption Compensation of employees Other spending and subsidies Interest payments * Proceeds are booked as negative expenditure EU budget bill 63 Gov t <<

65 Compliant with the rules of the Stability and Growth Pact Structural balance above Medium Term Objective As % of GDP 2 forecast and government debt back below 6% As % of GDP 7 forecast MTO European target Headline balance Structural balance (headline adj for cycle and one-offs) Underlying primairy balance (structural less interest) excl. gas Government debt Gov t <<

66 Favourable long-term sustainability of government finances Reforms have turned a long-term deficit into a long-term fiscal surplus As % of GDP 2 1 Strong increase in pension age In years *The sustainability balance shows how much policy measures need to be taken (in % of GDP) to ensure that future generations can benefit to a similar degree from public services at a constant tax burden (as a percentage of GDP) as is faced by present generations. This balance shows whether future tax revenues are sufficient to cover future government expenditures. The current modest sustainability surplus means that the debt level will stabilize under the assumption of consistent arrangements From 224 onwards, the entitlement age for state old age will be linked to life expectancy Sustainability balance* 65 Gov t <<

67 Data sources Page Sources Slide Sources Slide Sources 4 ING Forecasts 24 [1] DG ECFIN [2] CBS [3] DG ECFIN, CBS, ING calculations 46 DG ECFIN, CBS 5 [1] Macrobond, ING Forecasts,[2] CBS [3] CPB 25 DNB Bank Lending Survey 47 [1] Macrobond [2] CBS 6 [1] CBS [2] CBS, ING Forecasts 27 CBS, ING calculations 48 CBS, ING calculations/forecasts 7 [1] CBS, EC [2] ING calculations 28 [1] CBS, CPB [2] Eurostat, DNB, ING calculations 5 [1] VEH, Google Trends, ING calc. [2] Land registry, NVB 9 See notes on slide 29 CBS, ING calculations 51 [1] CBS, DNB, ING calculations [2] [3] Macrobond, DNB 1 CBS, WIOD, ING calculations 3 CBS, ING calculations 52 CBS 11 CBS, ING calculations 31 CBS 53 [1] Huizenzoeker, CBS, ING calculation [2] CBS 12 CBS, ING calculations 33 CBS, ING calculations 54 Eichholtz, CBS, ING calculations 13 [1] DNB, ING cal. [2] DNB, Macrobond [3] CBS, ING calculations 34 CBS, ING calculations 55 CBS 14 [1] CPB, CBS [2] CBS, ING calculations 35 CBS, ING calculations 56 OECD 15 WIOD, ING calculations 37 [1] CBS [2] CBS, ING calculations 58 CBS, ING calculations 16 [1] NEVI/PMI [2] CBS, ING calculations/forecasts 38 CBS, ING calculations 6 Macrobond 17 [1] Macrobond [2] ECB 39 [1] CBS, DG ECFIN, ING calculations [2] CBS 61 Macrobond 19 CBS, ING calculations 4 [1] Eurostat [2] CBS 62 [1] CBS, ING calculations [2] CBS, CPB, EC 2 CBS 41 CBS, ING calculations 63 CBS, ING calculations 21 [1] ING [2] CBS 42 CBS, DG ECFIN, ING calculations 64 CBS, ING calculations 22 CBS, ING calculations 43 [1] CBS, ING calculations [2] CBS 65 [1] CBS, CPB, ING forecasts [2] CBS 23 CBS, ING calculations 44 CBS, ING calculations 66 CPB 67 Sources <<

68 Contact details Dimitry Fleming Senior Economist ING Netherlands Economics Department Follow ACT A Bijlmerdreef 24 P.O. Box 18 1 BV Amsterdam dimitry.fleming@ing.nl +31 ()

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