Dutch manufacturers welcome lower interest rates and gas prices
The Dutch Manufacturing PMI improved markedly in January, from 44.8 in December to 48.9, the highest score in a year. The score is still marginally lower than 50, which indicates only a slight deterioration of business activity.
New orders, output and employment showed only modest declines. Purchasing managers are optimistic about 2024. The indicator for output expectations over the coming 12 months jumped from 59.7 to 65.7, indicating an increased level of optimism.
One explanation for the sunny outlook is the fast decline of interest rates during the past few months. For example, early November, the yield on ten-year Dutch government bonds still stood at over 3 percent. In January, the ten year-yield had declined to some 2.5 percent. Lower interest rates lead to lower financing costs for businesses, which might stimulate demand for capital goods such as machines.
Chip machine maker ASML published a positive report in January. The latest results show that new orders increased fast during the last quarter of 2023. The recovery of demand is good news for the many Dutch suppliers to ASML, including manufacturers of metal products and electronic parts.
Another tailwind is the fast decline of natural gas prices. Early November, natural gas still traded at a wholesale price of around50 Euro per megawatt hour (MWh). In January, the price dropped to around 28 Euro per MWh. Although energy prices are still relatively high in Europe, the fast decline of natural gas prices is good news for energy intensive industries, such as the chemical industry.
The fact that the major shipping route through the Suez Canal cannot be used because of rebels attacking vessels in the Red Sea has not yet resulted in severe disruption of supply chains. Many firms still have excess inventories that have been built up during the pandemic. Supplier delivery times even decreased further in January, be it only marginally.