Economy Cooling Down
updated: 30 July 2019
We already reported in late 2018 that a cooling down of the economy is imminent. Brexit and its related uncertainty, the US-China trade war, and other factors are causing a lot of turbulance. Germany and Italy have already significantly lowered their growth forecasts. The economic sentiment in the Eurozone has been on a downward trend for over a year (with the exception of May 2019).
In the Netherlands, too, there has been a decline in a number of key indicators.
- Consumer confidence is shrinking (from +23 in July 2018 to +2 in July 2019).
- Manufacturer confidence shows a downward trend (from +6.3 in July 2018 to +3.9 in July 2019).
- The number of temporary work agency hours has been shrinking since 2018 (-6.3% in the period 2019-06 versus +1.0% in 2018-06).
- The stock market index (AEX) has been unpredictable, but it is the only one of the five indicators that shows a positive trend. The index has been rising for the past six months in particular.
- The vacancy indicator of Netherlands Statistics (CBS) has been showing a decline for 16 months in a row. The subindicator for industry in particular has fallen spectacularly.
These five indicators turn out to be solid predictors of economic growth (see the graphs below). For the prognosis, we looked at each of the five indicators' average trends in the past 24, 12, and 6 months respectively. Given these trends, we expected economic growth by mid-2020 to be at 0.6 percent. The year-over-year growth (2019 versus 2018) will then be 1.5 percent. That is similar to the most recent prognosis by the Bureau for Economic Policy Analysis (1.7 percent, June forecast 2019) and the European Commission (1.6 percent, July 2019). At the end of 2018, both organisations were still expecting a growth of over two percent.