NL Update - Dutch manufacturing PMI improves slightly

Most notably, the indicator for output improved, from 45.4 to 48.3, which means that industrial output was reduced only modestly. New orders still declined sharply, but not as fast as in June. Some firms experienced some improvement in market conditions. This indicates that the unwinding of excess inventories might be completed soon.

In Germany, the most important export market for Dutch industrial products, business activity is dropping fast. Like in a number of other countries with large car industries, Germany’s industrial output has not dropped significantly until last spring. In May, the output of car industry in the European Union had increased by almost 20% compared to the same month last year, according to Eurostat, thanks to better supply of car parts after the pandemic. The increased production of cars compensated most of the slump in other industries, such as the chemical industry.

In July though, business activity in the German manufacturing sector has dropped fast, as signalled by the HCOB Germany Manufacturing Flash PMI. That does not bode well for Dutch new export orders in the coming months. Apart from that, the Netherlands is also hit hard by the downturn in the chemical industry, in which the Netherlands is a major player. Since May last year, output of the chemical industry in the EU has declined by over 10%. High natural gas prices make it hard for European energy-intensive firms to compete on the global market. In the Netherlands, the downturn of the chemical industry is even worse. According to Statistics Netherlands, the chemical industry’s output has declined by over 18% compared to a year ago.

There a two bright spots. First of all, many firms, for example in the machine industry, still hold large order backlogs. Many firms have order books large enough to keep production going for one to two years. Secondly, input prices are falling very fast, because demand is weak and severe material shortages have abated. That should allow most firms to survive until lower interest rates will lead to a slow recovery of demand for industrial goods.