Dutch manufacturing industry follows German producer confidence

The Netherlands is an open economy which means it has a busy trade with other countries. It has a very close relationship in this respect with Germany in particular. Not only is this is reflected in Germany-destined exports as a proportion of total exports: 26 percent point of the 63 percent of total Dutch exports to euro countries, it is also apparent from the close relationship between the confidence of German manufacturers and Dutch manufacturing output.

Dutch exports by geographical area, 2001

Similar trends for Netherlands and Germany

Comparison of production by the Dutch manufacturing industry with the German Geschäftsklima-index of the German Institut für Wirtschaftsforschung (Ifo) reveals that in the period March 1996 to April 2002 manufacturing production shows largely the same pattern as the Ifo-index.
The analysis further shows that the development of Dutch manufacturing production is on average slightly ahead of the German index.

Manufacturing production and Ifo-index for the manufacturing industry, March 1996 – May 2002

Dutch manufacturers supply German manufacturers

One explanation for this could be that the Dutch manufacturing industry plays an important part as a supplier of products for the German manufacturing industry, among others the metal industry and basic chemical industry. This explanation is supported by the fact that the expectation component in the Ifo-index is ahead of the development of Dutch manufacturing production.

In concrete terms, this means for example that if German manufacturers expect to have to produce more, they place orders with Dutch suppliers. Although, the relationship seems to have loosened somewhat in the last months, March and April, it is too early to draw conclusions from this.

Manufacturing production and Ifo-index for the manufacturing industry, expectations March 1996 – May 2002

Higher manufacturing production in the Netherlands?

Up to now, then, the German index have given as a quick first indication of the results of manufacturing production in the Netherlands. If this relationship holds in the coming months, the expectation component of the Ifo index foresees an upswing in Dutch manufacturing output in the near future.

Peter van Es