In late December, FD Outlook – the quarterly business magazine from Dutch newspaper, Het Financieele Dagblad featured a two-page ING advertorial.
Group Chief Economist, Mark Cliffe, Head of Commercial Banking Netherlands, Annerie Vreugdenhil and Global Head of Network, Diederik van Wassenaer bring ING’s Outlook 2014 for the Dutch corporate and SME market. This is consistent with the theme of the business magazine, which looks ahead to the new year.
Mark Cliffe, Chief Economist ING Group
Promising growth is returning
After three years of decline, the growth of the global economy is picking up again. For the Netherlands too, the economy is expected to improve over the course of 2014, said Mark.
“For example, we are seeing that the bottoming-out of the housing market is leading to an improvement in sentiment among households.”
However, Mark called for caution: “Recovery is there, but risks remain. The budget crisis in the US, the slowdown in some emerging markets and problems related to the eurozone are possible causes for concern.”
Export driving recovery
The Dutch export is the driver of the recovery. It is doing well, but that will only be sustainable if it is matched by with sufficient investments. These are now well below the level of five years ago.
“Investment in research and development in particular would be beneficial to long-term growth,” said Mark.
“Many of the countries ranked higher on competitive tables spend 50 to 100 percent more on innovation. In addition, the Netherlands faces competition on the fiscal front. London, for instance, is attracting investments with a fiscal regime that is catching up to that of the Netherlands. These could all possibly hinder export growth.”
More investments to retain export success
The increasing surplus on the current account reflects the export strength of the Netherlands. At the same time it underlines the weakness of domestic demand, which in turn impedes imports.
“This could lead to a record surplus of EUR65 billion on the current account next year, representing 11 percent of the Gross Domestic Product.”
Mark stressed that the current weakness of Dutch corporate investments could undermine the export capacity in the long term.
“Luckily, there are signs that corporate investments are improving, thanks to the ongoing recovery of global trade and the growth recovery in the eurozone, among other things.”
Annerie Vreugdenhil, Head of Commercial Banking Netherlands
Profitability, financing and M&A
“Our equity analysts expect for 2014 an acceleration of profit growth for most listed companies in the Benelux; over 10 percent on average,” says Annerie.
“Those large corporates have built up ample reserves, making them easier to finance. This gives them the strength to make investments or acquisitions. Activity on the mergers and acquisitions (M&A) market is expected to increase across a broader spectrum. As a bank, we are keen to look into financing these types of growth investments. In addition, we are seeing a favourable market for corporate bonds at the moment that many companies are benefitting from. These are all favourable factors for growth.”
Consumer confidence and SMEs
Even though the economy is in the early stages of growth, the profitability of particularly small businesses continues to be pressurised and for many companies there will be little financial room for investments from their own resources, Annerie predicts. “On the other hand, consumer confidence seems to have passed its low point (November 2013). With this also for SMEs the low point seems to have passed, but here the route to recovery will take longer.
“Companies with international clients will benefit sooner from the early recovery than companies with solely domestic clients. The Dutch government is still making cuts and the remaining domestic demand will remain too low for domestically-focused SMEs to benefit from,” she said.
Growth in sectors
Finally, Annerie sums up the outlook for several important sectors.
“Due to the slightly improved economic situation in the eurozone, industry, transport and wholesale are set to grow in 2014. Agriculture is continuing to grow gradually and the catering industry is showing moderate growth. Heavy production declines in the construction sector seem to be over. On the other hand, volumes in health care are set to decline in 2104 for the first time in decades, as are volumes in the public sector; this is due to a decline in the number of advisory committees and independent administrative bodies. Education is showing growth in 2014.”
Diederik van Wassenaer, Global Head of Network
Opportunities in nearby and emerging markets
Diederik outlines where the Netherlands could benefit from improving global trade.
“In the short-term, especially nearby European countries such as Germany, Poland and the UK offer opportunities. For those markets, we foresee an import growth of 4.5%, 12% and 7.5% respectively. To allow Dutch businesses to benefit from this, ING supports companies with its knowledge and local networks in these countries and we are also actively involved in trade missions. For example, the technology trade fair Hannover Messe offers good opportunities in Germany in April, in particular now that the Netherlands is a partnering country on the trade fair this year, which creates extra attention for Dutch technology companies. ING will also be involved in this. In the long-term, emerging markets continue to offer the best growth perspectives,” says Diederik.
“Important are the recently-announced economic reforms in China. This year’s successful trade mission to China will be repeated in 2014, on an even larger scale than the last one.
Support and networks
ING has a presence in Europe and many growth markets with local offices and knows the markets and local companies well. “We also work closely with the Dutch embassy network to make sure Dutch companies are as effectively supported as possible. And of course ING, via our own network, initiates contact between foreign investors and Dutch businesses.”
SEPA compulsory from 1 February In conclusion Diederik points to the implementation of the Single Euro Payments Area (SEPA) on 1 February. Under European law it is compulsory for companies in Europe to migrate to SEPA. “Internationally-operating Dutch businesses can benefit from this, for example by expanding their client base internationally and using the opportunities SEPA offers to optimise their financial management. Dutch SME suppliers can then benefit indirectly within the supply chain.”