The Dutch economy gradually recovers

Crédito y Caución expects corporate insolvencies to increase only 2% in 2010 compared to 2009, but even a year-on-year decrease is not inconceivable.
Analisis Credito y Caución
Madrid - 08-mar-2010

The recovery of the Dutch economy gained momentum in the second half of 2009. GDP increased 0.3% in Q4 of 2009. Although growth was lower than in Q3 (0.5%), this is the second consecutive quarter with a positive quarter-on-quarter growth after four quarters of contraction. After the GDP drop of 4.0% in 2009, the consensus forecast expects a growth of 0.9% in 2010. Exports have gradually recovered after months of decline. In November 2009, the volume of goods exported was 2% lower than in November 2008 (-6% in October 2009), and exports to nonEU markets were notably higher.   

Over the past eleven months, consumer spending has continued to decrease. Food has suffered least, with only a small decline, while non-food sales showed a 10% decrease in November 2009 compared to November 2008. The unemployment rate rose to 5.3% in Q4, compared to 3.7% in 2008. This increase is much less than had been expected some months ago.

As trade in commodities for energy, steel and oil-related products has again increased, the Port of Rotterdams goods throughput recovered in the second half of 2009. This has also helped the transport services industry to recover. In the real estate/housing sector, sales of new-build houses have yet to pick up, and the adverse weather conditions this winter are an additional blow to the construction sector.

According to the Nederlandsche Bank (DNB), year-on-year growth in lending to businesses by Dutch banks declined further, to less than 4% in December 2009: the lowest figure for 3 years. On a monthly basis, lending decreased during 5 months in 2009. The main victims of tighter credit conditions are SMEs. The Ministry of Economic Affairs has therefore financially supported two pilot projects, providing companies with concrete practical and administrative help in thoroughly preparing their requests for (additional) funding before submission to banks. The projects will start in April, with a focus on around 2,000 SME businesses that are also eligible for a governmental guarantee of up to Euro 250,000. The government has also announced a working capital guarantee for companies active in the agriculture sector, with agreements having also been concluded with the banks.

Although lending conditions have tightened, Crédito y Caución see that banks, besides scrutinising companies´ balance sheets, are also reviewing the market situation and the operational efficiency when assessing risk. As a result, Crédito y Caución do not foresee the risk of a credit crunch in the short term.

Much lower insolvency increase in 2010

Overall in 2009, company insolvencies increased 73%: to more than 8,000. However, in the first quarter of 2009 the increase had been at its steepest at 100%. The decrease in corporate insolvencies recorded in Q3 continued in the last quarter. Looking at sectors, Crédito y Caución still sees a continued high level of insolvencies in the financial and business services sectors. Insolvencies in the construction sector, while also high, have started to level off, but some concerns remain as the insolvency rate may increase again in early 2010. In the transport sector, a third of companies reported a loss in 2009, and concern remains, as the sector faces price increases for both fuel and labour.

In December 2009, the Expected Default Frequency (EDF) indicator for the Netherlands dropped to its lowest level in 2009. Currently, Crédito y Caución expects corporate insolvencies to increase only 2% this year compared to 2009, but, in view of recent developments, even a year-on-year decrease is not inconceivable.

Electronics and IT, positive outlook

Although the electronics sector was hit hard right from the start of the credit crisis, with a steep decline in orders and production, the tide has now turned. Major companies have announced a return to profitability and, whats more, the IT sector expect investment to increase after two years of stagnancy. Currently Crédito y Caución short term outlook is positive for these sectors, with a forecast of increased turnover and results in 2010.

The number of insolvencies in the electronics and IT sectors was not as high as expected and its certain that payment delays or default will decline further. That said, as business volumes are again growing, the new concern is whether companies have sufficient funding to finance growth. As the added value in these sectors is relatively high (up to 40% or more), any payment delay should be seen as an important warning sign.

Food industry remained robust

The food industry has remained fairly robust throughout this crisis. Consumer spending on food decreased only slightly, and exports remained on virtually the same level as the previous year, with only a small decrease of around 1%. Lower commodity prices and consistent volumes have made this sector a stable element in the Dutch economy. In contrast, in the agricultural sector, vegetable and horticultural producers have been hit by overproduction, price decline and deteriorating demand. Together with the heavy investments in expansion, financed by loans, many players in the sector face tight liquidity problems.

The number of insolvencies in the food industry has remained low throughout 2009, while, in the agricultural sector, insolvencies have increased substantially. Currently Crédito y Caución short term prospects for the food Industry are reasonably good, as consumer spending on food products was only slightly affected and consumer confidence has continued to improve over the last 10 months. For the agriculture sector, however, the prospects are pretty grim. In the short term it is all about survival, with a particular focus on cash flow in the flower, plant and vegetable production.

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