Inflationary pressures on the Dutch economy, exacerbated by taxation system changes, are expected to...
Inflationary pressures on the Dutch economy, exacerbated by taxation system changes, are expected to ease in the fourth quarter, allowing positive economic growth.
The switch of emphasis from direct to indirect taxation helped push up inflation rates to 4.6% in July, according to Nico Klene, economist at ABN Amro Asset Management.
Over the 12 months to the end of July 2001, the Amsterdam exchanges index has fallen 16.98% in sterling terms compared to a fall of 10.41% in the FTSE All Share.
However, consumer demand is expected to pick up, which should support the equity market, Klene says.
'The high levels of consumer spending in Holland in recent years offset the effects of the global slowdown to a certain extent,' says Klene.
Inflationary pressures have also reduced competitiveness in the key export market, which accounts for 60% of Dutch GDP, he adds.
'Holland is very sensitive to the global economic climate. The health of the Dutch economy depends on the strength of its exports,' he says.
The country has a severe skilled labour shortage, which is affecting the long-term growth prospects of many companies.
The drop-off in demand caused by the slowdown has masked the effects of this issue, but Klene believes it will resurface when the economy starts to recover.
The larger Dutch multinationals, he believes, should remain fairly well insulated from these problems because their home market no longer accounts for a significant proportion of companies earnings or production capacity.
Lower oil prices should also strengthen consumers purchasing power later in the year according to Gavyn Davies, chief international economist at Goldman Sachs.
He believes that there are clear signs the Dutch economy is slowing. Manufacturing production was down by 3% in the first two months of the second quarter compared with the two preceding months. In addition, consumer confidence is now at its lowest level for five years.
The key indicators to watch for signs of a bounceback are wages, the health of the labour market and inflation, Davies says.
In December last year, the Labour Foundation recommended a wage increase of around 4% in 2001.
Yet since the beginning of the year, most collective agreements have reached a wage increase of at least 4% with some strong upwards deviations, he says.
'As a consequence, we expect wages per employee to accelerate significantly to around 6% year on year this year from 3.9% last year,' says Davies.
Unemployment in seasonally adjusted terms continues to decline he points out. Since the beginning of the year unemployment has fallen by 40,000 and the unemployment rate is now at its lowest level since the early 1970s.
Davies says: 'However, as the economy slows and the effects from the VAT hike vanish, wage growth should ease in 2002.'
• Unemployment continues to fall.
• Wage growth should ease.
• Multinationals faring well.
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