The increase in household consumption has levelled off strongly in the Netherlands, a trend that has coincided with a fall in consumer confidence. This is not the case in the United Kingdom (UK). Consumer confidence has not decreased there and household spending is still growing steadily, with the result that economic growth in the UK is higher than in the Netherlands. Is this related to the difference in the development in house prices between the two countries?
Economic growth, Netherlands and UK
Dutch economic growth has been lower than that in the UK since the third quarter of 2000. In the course of 2002 the difference rose to just over one percent point. Consumer spending is the main impulse for the UK economy, not investment or foreign trade. In the first half of this year consumption by households was 3.8 percent higher than twelve months previously; in the Netherlands the increase was no more than one percent.
Consumer confidence, Netherlands and UK
Dutch household spending rose by more than four percent in 1998 and 1999, while last year it increased by only 1.2 percent. This levelling off of consumption growth was accompanied by a fall in consumer confidence.
In spite of the global decrease in recent years, in the UK consumer confidence has remained more stable.
The fact that confidence among Dutch consumers fell substantially while that in the UK did not may be related to the difference in the development of house prices.
House prices, Netherlands and UK
Developments on the house market
House prices in the Netherlands rose robustly at the end of 1998 and in the course of 1999. Following a peak in the fourth quarter of 1999 the rate of increase levelled off in 2000 and 2001. In the first three quarters of this year price increases have been fairly stable and houses in the Netherlands cost about five percent more than twelve months previously.
In the UK, on the other hand, house prices have risen unabatedly every quarter since the beginning of 2001. In the third quarter of 2002 prices of houses in the UK were more than twenty percent higher than in the same quarter in 2001.
The present difference in economic growth rates between the Netherlands and the UK is accompanied by different price developments on the house market.
Frans van Ingen Schenau