Netherlands: Keep the positive momentum

​Real GDP growth accelerated in 2016 to +0.7% q/q on average (up from +0.3% in 2015). Yet growth slowed down in Q4 (+0.5% q/q) bringing the annual figure to +2.1% (see Figure 1). Nominal GDP growth has continued to recover reaching +3% in 2016, one of the highest rates in the Eurozone, up from +2% in 2015. 

Construction investment expanded at a strong rate (+6.2%), as house prices reached in 2016 levels last seen in late 2011 (see Figure 2) and confidence is the highest since October 2008. 

After decreasing in H1 2016, the issuance of new construction permits increased again in H2. This could mean that the government struggles to curb housing sector growth and household debt. Measures aimed at reducing loan-to-value ratios and mortgage interest rate tax deductibility may be less effective than hoped. 

The Netherlands has the second highest household debt-to-GDP ratio among OECD countries, due to tax incentives that encouraged leverage. According to the European Commission, 30% of homeowners had negative equity in early 2016. 

Due to strict restructuring legislation, private consumption has remained subpar (below 2%). This is despite the housing market wealth effects, the pick-up in real wages and the marked fall in unemployment. At 6.4% in January 2017, the latter has reached its lowest level in five years. 

Capacity utilization rates reached their long-term average at end-2016 (82.2%) and helped private investment grow at a strong rate of close to 5%. Yet rising commodity prices and bottoming-out bank interest rates can hamper investment growth in 2017.