Dutch Confidence Continues to Climb…Still in a Hole

Dutch consumer confidence improved in April, rising to -21 from -22 in March, continuing its slow but steady climb higher. The willingness to buy index also continues to make a steady climb; it improved to -13 in April from -14 in March and -17 in February.

A strong six-month change: The simple period-to-period changes (not annualized) show that most of the change in the index has come over the last six months. Over the last six months, confidence is up by 17 points compared to being up 16 points over 12 months; a 7-point gain has occurred over the last three months. For the willingness to buy, there’s an increase of 14 points over six months compared to a 17-point gain over 12 months, once again most of the improvement coming over six months. Since then, the improvement is evenly split as the index has improved by 7 points over the last three months.

Climate: The measure of climate from the Netherlands continues to improve; it rose to -34 in April from -35 in March and from a reading of -41 in February. Looking at its sequential changes, the bulk of its improvement has come over six months as well, where there's a 22-point gain which is larger than the gain that it made over 12 months; there's a gain of 14 points; however, the pace of gains obviously has slowed with only five points worth of gains occurring over the last three months.

Still, the message from the Netherlands is that we're seeing improvements and the improvements, while slow, continue to be steadily coming month-by-month. The last six months has been particularly good for the improvement in conditions in the Netherlands.

Belgian compared We can compare the improvements in the Netherlands to Belgium’s consumer confidence index, a country from the same region and a member of the European Monetary Union. Belgian confidence deteriorated over six months, it fell by one point over six months, was unchanged over 12 months, and then showed more weakness recently by falling by 4 points over three months. The readings for the Belgian index show -6 in April, a deterioration from -5 in March with the March reading being unchanged from its value in February. These comparisons show that the Netherlands is having a much better recovery experience in 2024 than is Belgium, an economy that is traditionally linked strongly to the German economy.

Queue standings across metrics- We are evaluating these metrics in terms of their queue standings; on data since about 1990, we see that the Belgian data that are improving by less recently have the stronger queue standing over the entire period with a standing in its 54.5 percentile. This compares to a confidence ranking in the Netherlands at its 25.7 percentile, a willingness to buy standing in its 24.7 percentile, and the climate reading in its 30.6 percentile. Belgium has improved to a higher level than the Netherlands, but the Netherlands is currently experiencing a faster pace of improvement from a worse level of confidence than Belgium. These metrics are borne out over a shorter period as well. Since January 2020, the Belgian confidence indicator is up by 20 points while the Dutch confidence index is up by two points, the willingness to buy index is up by four points; Dutch confidence is weaker by three points.

These comparisons also help to illustrate how there are different things going on within the European Monetary Union as different countries, even under the umbrella of the same monetary policy and geographically close, are experiencing different forces. Some economies have more reliance on their services sectors, some are more reliant on their goods sectors, and some, like Germany, had a much higher connection with countries where trade has been impaired such as Russia and China. Germany, with a relatively high exposure to international trade and the strong dependence on its manufacturing sector, has had a very difficult time making progress since COVID struck and then especially in the wake of the Russian attack on Ukraine, something that German economy really was not prepared for at all. The evidence from Germany, from its behavior judging from its resistance to put money into its defense sector, indicated that it thought that these kinds of expenditures were frivolous, and they refrained from doing them or minimized them, because they didn't believe they would experience aggression from Russia. When Russia invaded Ukraine and that proved to be wrong, it set German policy and priorities on their ear and caught Germany quite unprepared having focused its economy on a green agenda and having set its energy dependence on being supplied by Russia.

It's clear that the Dutch economy still has a way to go. The graphic shows it had a step down in activity before COVID struck, another step down after COVID struck and then a step down after the Russian invasion. However, around mid-2022, the Dutch economy began to make an improvement and it has continued improving on a relatively steady path interrupted only by a pause in mid-2023. Based on the changes in the confidence, climate, and willingness to buy indexes, it appears that there has been a slight slowing in the rate of improvement over three months compared to six months. However, right now, that slowdown appears to be relatively minor. With the ECB getting ready to provide an easier interest rate policy, perhaps there will be an added kick to the Dutch economy assuming that the ECB is able to follow through with this planned rate reduction around mid-year. Other central banks have experienced a slowdown in the rate of inflation progress. In the U.S., there appears to even be a backtracking in place and that put the Fed’s plans for rate reductions on the back burner. Assuming that doesn't happen in the European Monetary Union, the Netherlands should be facing some tailwinds as the year progresses courtesy of monetary policy.