According to the first preliminary Statistics Netherlands [CBS] estimate, the Dutch economy shrank 0.5% year-on-year in Q2 of 2012 as, despite further export growth, household consumption and investments continued to decrease. Consensus Forecasts expects the Dutch economy to shrink 0.7% this year followed by 0.6% growth in 2013. However, it should be noted that the 2013 GDP forecast has been revised downwards on a monthly basis since April 2012.
The weak economic performance is partly due to sluggish private consumption, which decreased year-on-year in 2011 and is expected to shrink further in 2012 and 2013. Consumer confidence remains subdued, as expectations for the economic situation over the next 12 months are still pessimistic with little willingness to spend. This is mainly due to the persistent slump in the Dutch property market. The stock of unsold property has doubled since 2008, and house prices have decreased more than 10% from their peak in August 2008, leaving up to 500,000 people with negative equity. At the same time unemployment has risen to 6.8% in June 2012 and new austerity measures, including a VAT increase, a freeze in civil-service pay, higher health-care contributions, cuts in tax benefits for commuter travel and a rise in the pension age to 67, will hit disposable incomes.
Slowdown of export performance
Strong recovery of manufacturing output in 2010 [+7%] was followed by further growth in 2011 [+3.3%]. Manufacturing production is expected to decrease slightly this year, and then rebound in 2013. Accor- ding to CBS, producer confidence in the manufacturing sector has decreased since early 2012. IHS Global Insight forecasts export growth to slow, from 3.9% in 2011 to 1.7% in 2012.
Gross fixed investment is expected to decline in 2012 after a 5.7% increase in 2011, followed by a modest rebound in 2013. According to CBS, private fixed capital formation has recorded monthly year-on-year decreases since February 2012.
The insolvency environment
According to CBS, during the 2009 recession the number of Dutch corporate insolvencies increased 73.5% year-on- year. The following economic recovery manifested itself in fewer business failures in 2010 and 2011, but insolvency figures were still much higher than their 2007/8 pre-crisis levels. The current economic slowdown has triggered another insolvency increase: In H1 of 2012 business failures rose 24.9% year-on-year, and we expect insolvency cases to exceed 8,000 cases in 2012.
In the first half of 2011, the median Expected Default Frequency [EDF] for listed Dutch companies continued its moderating trend, albeit at a slower rate than in 2010. However, since July 2011 the Eurozone debt crisis has led to deterioration in Dutch EDF: the December 2011 EDF for the Netherlands [4,5%] was 20 basis points higher than in June 2011. In line with the general trend in the first half of 2012 the Dutch EDF improved again, with the June 2012 figure 12 basis points lower than last December, but still higher than in the first half of 2011.
The Expected Default Frequency is based on listed companies in the markets referred to, and the likelihood of default across all sectors within the next year. In this context, default is defined as a failure to make a scheduled payment, or the initiation of bankruptcy proceedings. Probability of default is calculated from three factors: market value of a companys assets, its volatility and its current capital structure. As a guide, the probability of one firm in a hundred defaulting on payment is shown as 1%.
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