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Economy in Brief

Dutch Retail Sales Continue Their Rebound But Trends Soften; Baltic Dry Index Implodes
by Robert Brusca  February 11, 2016

Dutch retail sales have had a rocky time since 2007. After that, the first flirtation with advancing sales was in 2010, but that did not last. Since 2014, however, year-over-year sales have been steadily advancing. Even so, recent trends show an unmistakable sag in the path of year-over-year sales. Six-month volume trends show a decline and both food and sales volumes are falling over six months. Food and clothing sales, both real and nominal, are falling over three months as well. At least, the declines over three and six months do not show clear accelerating declining trends. Still, the recent data are unmistakably more circumspect even though nominal sales are up for three-month running and real sales are lower in only one of the last three months.

Retail sales are expanding nicely year-over-year by 1.9% in volume terms. This gain complements ongoing growth in Dutch industrial production. Dutch IP has been ramping up even as Dutch retail sales have been slowing down.

The Netherlands sits on Europe's coast on the edge of the North Sea. Rotterdam is an important port for bringing European exports to market which pass though the country as trans-shipments and provide economic stimulus. The Dutch are historically a productive people, but trends in world trade are having an adverse impact on the Dutch economy as well as all of Europe and the global economy.

The Netherlands is wedged between Belgium and Germany, and Germany has been one of the best performing economies in the EMU. This geographical position has aided the Dutch economy. But the European Central Bank has imposed a policy of negative interest rates. Overnight Sweden surprised Europe by stepping up its program of negative rates. The central banking environment underscores the weakness in the local economics and that central banks are taking extraordinary steps to boost growth.

Today's attention is still focused at the U.S. economy and the ongoing testimony of Fed Chair Janet Yellen. Today she repeats her opening statement from yesterday and will take questions in front of the Senate Banking Committee. All eyes are on the Fed which has been going its own way and has actually started to hike rates at a time that other central banks have been cutting them and in the midst of a global stock market selloff. The main fallout for Europe from the Fed's policy will come through the exchange rate. The dollar has been falling vs. the yen and has hit a 16-month low vs. the yen in overnight trading. The dollar until recently has been strong and rising against the euro, which remains undervalued when viewed on a broad basis or more narrowly just against the dollar.

As a country is plugged into the global trading system, the impact of the Federal Reserve's policy is important and so is the outlook for global growth to the Dutch economy. The Baltic Dry Index continues to weaken and it is a well-known barometer of global trade volumes. That index's recent path is once again chilling and casts pall across the Dutch economy as it currently is sinking to its lowest of low readings in the post financial crisis period. This index also casts a pall across any economy that is well plugged into the world trading system.

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