NL Update - Dutch industrial order backlogs drop at fastest rate since 2012
“The NEVI Netherlands Manufacturing PMI dropped even further, from 44.9 in April to 44.2 in May. It is the lowest score since three years, a couple of months in to the pandemic. New orders dropped fast. The steep decline of order backlogs is another sign of very weak demand. Backlogs of work dropped at the fastest rate since April 2012, during the European debt crisis.
The manufacturing sector is suffering from slow economic growth caused by fast rising interest rates and high inflation. Firms are still reducing inventories because supply chains are functioning again, financing costs have increased and demand is weak. Because of the weak demand, firms are also reducing output.
The reduction of inventories is taking longer than expected. It is likely that excess inventories will be cleared soon, for example after summer, which would lead to improving demand.
On the other hand, higher interest rates will lead to lower demand for building materials. Due to higher financing costs, construction of new houses will decline in the second half of this year.
Nevi Purchasing Managers' Index for Dutch manufacturing at lowestpoint in three years
below 50 indicates a decline in activity
Part of the reason why demand is weak are the high prices. The good news is that both input and output prices are falling, partly because of lower energy prices. Still, European natural gas prices are twice as high as two years ago. This makes it harder for energy-intensieve industries, such as the chemical industry, to compete with other parts of the world. In the chemical industry, this has led to a double-digit decline of output. The German economy has even entered a recession. This is a problem for the Dutch manufacturing industry, because Germany is its most important export market.
Unfinished production index at lowest point in 11 years
Nevi Purchasing Managers' Index sub-indicator for unfinished work. A reading below 50 indicates a decline of unfinished work.
Still, demand might improve somewhat when excess inventories are cleared. However, a strong recovery is unlikely as long as the economic growth outlook is muted. Central banks have raised interest rates in order to bring inflation down. We do not expect interest rate cuts before the end of the year. Therefore, the outlook for manufacturing remains bleak this year.”