The financial crisis has left deep marks in the European economy. This was also reflected in rapidly decreasing consumer confidence across Europe, including the Netherlands. Although consumer sentiment initially appeared to pick up, the recovery was short-lived (Figure 1). Particularly in the Netherlands, consumer confidence dropped sharply and is currently at the same level it was during the credit crisis (Figure 1).
DNBulletin: Consumer confidence not determined solely by the economy
|Date||10 October 2013|
Dutch consumer confidence suffered heavily during the credit crisis and five years on has not shown clear signs of recovery. New DNB research shows that consumers’ confidence in the economy is not determined by economic factors alone.
What factors determined the development of Dutch consumer confidence? DNB recently published a retrospective study into consumer confidence determinants, which shows that the Dutch economy has witnessed several crises of confidence, including consumer confidence. The crises that occurred before the recent credit crunch can be explained by a number of general economic indicators. Between 1978 and September 2008, these were unemployment, perceived inflation, house prices, equity prices and interest rate trends. But by mid-2008 this model grossly overestimated consumer sentiment (Figure 2).
The DNB study subsequently examined what factors could be added to the model to ensure that it is capable of explaining consumer sentiment well. The study suggests that the following additional factors play a role in explaining Dutch consumer confidence: (1) public trust in the financial sector, (2) public trust in Europe, and (3) political instability in the Netherlands. Together, these three factors help to explain consumer sentiment much better than economic factors alone (see Figure 2).
According to the DNB Household Survey, Dutch trust in the financial sector has dropped sharply since the crisis. Towards the end of 2012, 19% of respondents expressed little trust in financial institutions, compared to 12% in 2010 and a mere 5% in 2008. The financial crisis triggered a series of events, including the European debt crisis. This has diminished Dutch people’s trust in Europe, European Commission opinion polls show. Restoration of trust in the financial sector and in Europe may contribute to the recovery of consumer confidence. The study also reveals that political instability in the Netherlands further damaged consumer confidence, bearing in mind that since 1998 no government has served its full term. The repeated cabinet crises fuelled public uncertainty about the country’s economic course.