Foreign Demand Growth Limited: Outlook for Dutch Exports and Inventory Reduction

Limited growth in foreign demand

After a weak first quarter, Dutch exports are expected to pick up over the rest of 2023 and 2024, in line with a recovery in global merchandise trade, which recently experienced a setback. Conditions have improved as supply chain disruptions are hardly hampering trade anymore, global destocking is gradually decreasing, and China is no longer having lockdowns. This expectation is also in line with the increased outlook of producers regarding foreign turnover in the next three months. However, goods exports are likely to grow only at a slow pace. The economies of the eurozone, the US, and the UK remain weak, and the shift from goods to services consumption continues.

 

Inventory reduction will gradually decrease

Producers are still relying on their inventories due to reduced demand and significantly diminished supply chain issues. The historically large stock of materials and finished products is increasingly seen as a cost item since financing has become more expensive due to higher interest rates.

With the long-lasting disrupted supply chains fresh in memory and considering the current geopolitical unrest, producers won’t deplete their buffer stocks completely. However, a majority of Dutch producers still consider their finished product inventory to be too large. Therefore, traders and final producers are aligning their inventories with expected sales. Suppliers are also reducing their inventories. This bullwhip effect has led to significant production declines at the beginning of value chains, such as in basic chemistry, basic metal, and plastic industries, but it will gradually decrease.

 

Bottom for energy-intensive industry in sight

On the other hand, new orders in the chemical and plastics industries are picking up again. Energy prices are also significantly lower than the average of the past year. Therefore, some recovery in the energy-intensive industry is possible from the second quarter onwards. As a result, the energy-driven growth gap between manufacturing sectors is gradually disappearing. However, due to economic headwinds and energy prices expected to remain structurally higher than in 2021, the energy-intensive industry does not anticipate a quick return to previous production levels.