The Purchasing Managers' Index for the Eurozone reached a 12-year unprecedented level of 58.6 in January. European manufacturing registered a value of 59.6, while the European services sector came out at 56.6. So did Dutch manufacturing perform better or worse than the Eurozone?
Based on the latest NEVI PMI report, the redeeming answer is: better!
The fresh record of December 2017 (62.4) was broken with a value of 62.5 (a PMI value >50 indicates increase in industrial activity compared to previous month, a value < 50 indicates a decrease). The picture from previous months is unchanged: strong demand for Dutch products continues (especially appliances, machinery and semi-finished products) from both home and abroad. The strong increase in demand for construction products reinforces this trend. The industry cannot cope with the demand, given the strongly increasing demand for (skilled) personnel (employment index: 62.6) and strongly increasing delivery times from suppliers. Buyers are anticipating further price increases and hedging their material requirements for longer periods.
Activity in manufacturing remains high
Given the high value of the purchasing price index (73.3), the purchasing price increases are substantial. And these are obviously being passed on to higher selling prices. The outlook for manufacturing, and hence for all related supplying sectors, is unquestionably good. Nevertheless, strong price inflation will start to dampen future growth. When that will kick in cannot be foreseen at this stage. Watch the video commentary on the NEVI PMI here.
However, according to the Economic Bureau of ABN Amro and others, we should remain alert to risks that could damage confidence. These include trends in China's economy, volatile Trump policies and escalating geopolitical tensions. In particular, the increased likelihood of a hard Brexit (or a no-deal outcome) is something that industrial companies also need to start taking seriously into account. This could seriously test confidence within the Eurozone!
A hard Brexit
'The Netherlands will be relatively hard hit by a Brexit. The uncertainty is high and the clock is ticking' said Chris Williamson (chief business economist at IHS Markit). Occasional sounds of distress are made, though. Such as by British carmaker Aston Martin which says it will have to shut down production if the government does not manage to reach proper agreements with the EU. The company is referring specifically to the agreements that now exist on certification of cars: an Aston Martin certified in the UK is allowed on the road in all EU countries.
The question is whether British companies are already anticipating an upcoming Brexit by, for example, seeking suppliers in their own country. If they were to do so at all, the signs do not point to that, it is entirely questionable. Take the UK automotive industry, which sources 60% of its components from other countries. Capacity for scale-up is few and far between. If there is one country in mainland Europe that will be relatively badly affected by a Brexit, according to Williamson, it is the Netherlands. A country that lives mainly on trade and transport obviously suffers greatly from tariff barriers and other barriers to trade. Economists at Rabobank calculated the impact of a Brexit on both the Dutch and UK economies in different scenarios. A hard Brexit will cost us 4.25% growth until 2030, equivalent to 4,000 euros per working Dutchman. Even a soft Brexit, with the UK remaining part of the single market, costs us 3% GDP growth.
Never before has a country left the EU. So it is probably difficult for you to oversee the impact of the Brexit on your business. It is also important for you to identify the opportunities and threats of a Brexit for your business and take possible action. Here you will find tips, downloads and a Brexit checklist. There is even a RVO Brexit desk and a dedicated website www.hulpbijbrexit.nl, an initiative of VNO-NCW, MKB-Nederland and banks, central government and industry associations. In short, you can get started today, so don't wait too long!
