Trading conditions in Dutch industry deteriorated sharply in June due to further weakening of demand. This was reported by the Dutch Association of Purchasing Managers (NEVI). According to the organization, which tracks the monthly state of the industry, this is the largest deterioration in trading conditions in more than three years. “The conclusion is not a happy one,” says BNR in-house economist Han de Jong.
The Nevi’s so-called purchasing managers’ index fell last month to 43.8 from 44.2 in May. A level of 50 or higher indicates growth in activity, below a contraction. Industrial activity has now been in contraction for ten consecutive months. ‘Although 43.8 is not much below 50,’ explains De Jong, ‘such levels usually only occur during periods of economic recession.’ So everyone can draw their own conclusions, he adds.
While 43.8 isn’t far below 50, such levels usually only occur during economic downturns.
Declining demand
The sector is grappling with an ever-shrinking demand for new orders, including from abroad. The global economy is slowed down by high inflation and interest rate hikes by central banks, which are affecting the Netherlands.
According to De Jong, the decline in demand is also linked to the impact of the coronavirus pandemic, when some goods could not be delivered. ‘Companies then built up considerable inventories’, which means that, according to De Jong, we are now engaged in ‘a process of significant inventory reduction’.
Production volumes fell and employment fell for the first time since October 2020. Companies are responding to falling demand by adjusting workforces, according to Nevi.
As a result, however, the pressure on input prices will decrease further. Purchase prices have fallen, according to Nevi, by the greatest extent in more than fourteen years. The companies subsequently also lowered their selling prices for the second consecutive month.
“Demand is still very weak. The number of new orders further decreased at a rapid pace. The backlog even declined at the fastest rate since 2009 during the credit crisis,’ says Albert Jan Swart, industry economist at ABN AMRO, in an explanation. “The global economy appears to have lost momentum due to high inflation and rising interest rates. Demand has already weakened last year, as companies began trimming excess inventories. Meanwhile, the higher interest rate has also clearly taken hold of investment.’
“I feared for a while that we were entering a recession, and it’s closer than many think”
Aftershocks
According to De Jong, things are not going the right way. “I’ve feared for a while that we were entering a recession, and it’s closer than many think.” He adds, “But we have to say that the economy has experienced a huge number of very unusual shocks in recent years and we are now experiencing what you might consider aftershocks.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
