Friday, July 15, 2005

New 'Dutch disease' has lessons for U.S. housing

Interesting story on the Reuters wire. Looks like a soft landing for the Dutch market has translated into a country full of penny pinchers. In other words, since their homes aren't appreciating by tens of thousands of dollars every few months, consumers don't feel so confident anymore and have cut back their spending so dramatically that the economy is on the brink of recession. Worth a look:
AMSTERDAM (Reuters) - U.S. and British policy makers concerned about house prices falling need only look at the Netherlands to see how even a soft landing can dampen growth.

With the Dutch economy in the fifth year of a slowdown, persistently low consumer spending led the daily Volkskrant to diagnose a "new Dutch disease," and the NRC Handelsblad said the economy was "hostage to the housing market."

For the second time in two years, the economy is on the brink of recession, with gross domestic product shrinking 0.8 percent in the first quarter compared to the final quarter of 2004, when growth was flat, and the outlook gloomy.

"People don't feel that they are automatically getting richer any more," ABN AMRO economist Charles Kalshoven said, adding Dutch welfare reforms had also created uncertainty, another reason for people consuming less and saving more.

The term "Dutch disease" refers to the 1960s, when the discovery of natural gas in the Netherlands led to a sharp rise in exports, driving up the currency and hurting export-oriented manufacturers.