IMF Executive Board Concludes 2022 Article IV Consultation with the Netherlands
IMF News, March 9, 2023
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- Published: March 9, 2023
Economic performance and outlook
- Real GDP grew by 4.9 percent in 2021, surpassing its pre-pandemic level.
- Real GDP growth: 4.2 percent in 2022; projected 0.6 percent in 2023; projected 1.2 percent in 2024.
- Drivers of 2021 recovery: vibrant private consumption supported by release of accumulated savings and a strong labor market.
- By end-2022, inflation had eased after a record high in September, but remained elevated, largely driven by energy prices.
- The labor market is tight with a low unemployment rate and high vacancies; wages have not picked up strongly so far.
- Assessment: Overall, the economy appears to be overheating.
- Impact of Russia’s invasion of Ukraine: smaller decline in the terms of trade for the Netherlands compared to the rest of the euro area.
- Current account surplus expected to have declined to 5.5 percent of GDP in 2022, from 7.2 percent of GDP in 2021, mainly driven by deteriorating terms of trade.
Inflation, demand, and financial conditions
- Headline inflation is expected to moderate in 2023 with the activation of the energy price ceiling.
- Core inflation is projected to peak in 2023 at about 7.3 percent.
- Growth slowdown in 2023: projected to slow to 0.6 percent from 4.2 percent in 2022 due to high inflation weighing on consumption, waning external demand, and tighter financial conditions.
- Financial cycle has started to moderate, accompanied by rapid cooling of a richly valued housing market.
Fiscal position and public finances
- Fiscal deficit projected to increase to 2.8 percent of GDP in 2023, mainly reflecting government measures to cushion the impact of high energy prices and the economic slowdown.
- Dutch fiscal position remains strong; public debt to GDP ratio expected to remain below 50 percent over the medium term.
- General government accounts (percent of GDP):
- Revenue: 44.0 (2021), 43.8 (2022), 43.3 (2023)
- Expenditure: 46.6 (2021), 45.0 (2022), 45.1 (2023)
- Net lending/borrowing: -2.6 (2021), -1.0 (2022), -2.8 (2023), -1.8 (2024)
- Primary balance: -2.2 (2021), -3.0 (2022), -1.9 (2023)
- Structural balance²: 0.1 (2021), -2.1 (2022), -2.4 (2023)
- Structural primary balance²: 2.2 (2021), -1.6 (2022)
- General government gross debt: 52.3 (2021), 48.3 (2022), 48.5 (2023), 47.9 (2024)
Executive Board assessment and policy recommendations
- Directors agreed with the thrust of the staff appraisal and noted the Netherlands’ impressive resilience during and after the pandemic.
- Risks and challenges identified: energy shock from Russia’s invasion of Ukraine, elevated inflation, tighter financial conditions, lower external demand, cooling housing market.
- Fiscal policy:
- A non-expansionary or modestly contractionary fiscal stance is called for in 2023 to help monetary policy fight high inflation amid a tight labor market.
- Fiscal policy should remain flexible given high uncertainty.
- Authorities were commended for using fiscal space to cushion high energy prices; Directors recommended better targeting to protect public finances from high volatility in international energy prices and to help price signals incentivize energy saving.
- Directors welcomed the authorities’ intention to explore additional measures to offset the budgetary cost of the price cap and make the support more targeted.
- Energy and climate:
- Directors commended measures to enhance energy security and fight climate change.
- Boosting investment in clean energy will enhance energy security while contributing to the green transition.
- Encouraged integrating climate adaptation in long-term planning frameworks.
- Financial sector:
- Dutch financial institutions are resilient with considerable capital buffers, but developments should be closely monitored given higher risks from the energy crisis and tighter financial conditions.
- Recent flagging house price momentum has heightened vulnerabilities.
- Directors welcomed the increase in the counter-cyclical capital buffer, but cautioned against a pro-cyclical stance given high uncertainty.
- To address vulnerabilities among Non-Bank Financial Institutions (NBFIs) and mitigate the risk of tensions on Liability-Driven Investment Funds, Directors urged authorities to:
- continue to closely monitor NBFIs;
- work toward closing data gaps; and
- improve supervision of these institutions, including contributing to international efforts in this area.
- Structural and medium-term priorities:
- Continue to use ample fiscal space to invest in medium-term challenges to enhance economic and social resilience and contribute to external rebalancing.
- Support spending and policies under the National Recovery and Resilience Plan to advance green and digital transitions and tackle structural challenges in housing, labor markets, capital taxation, and the education system, as well as support R&D.
- Emphasized importance of upskilling and policies to improve female labor participation.
Key quantitative indicators (selected)
- National accounts (percent change):
- Gross domestic product: 4.9 (2021), 4.2 (2022), 0.6 (2023), 1.2 (2024)
- Private consumption: 3.6 (2021), 5.7 (2022), 0.8 (2023), 1.3 (2024)
- Public consumption: 5.2 (2021), 3.1 (2022), 2.3 (2023)
- Gross fixed investment: 3.2 (2021), 2.7 (2022), 0.9 (2023), 1.5 (2024)
- Total domestic demand: 3.9 (2021), 3.3 (2022), 1.7 (2023), 1.6 (2024)
- Exports of goods and nonfactor services: 5.4 (2021), 4.3 (2022), 2.0 (2023), 3.0 (2024)
- Imports of goods and nonfactor services: 4.4 (2021), 3.5 (2022), 3.8 (2023)
- Net foreign balance¹: -0.9 (2021), -0.3 (2022)
- Output gap (percent of potential output): -1.1 (2021), 1.1 (2022)
- Prices, wages, and employment:
- Consumer price index (HICP): 2.8 (2021), 11.6 (2022), 4.8 (2023)
- GDP deflator: 2.5 (2021), 6.1 (2022), 5.0 (2023), 4.0 (2024)
- Hourly compensation (manufacturing): 0.2 (2021)
- Unit labor costs (manufacturing): -4.8 (2021), 0.7 (2022)
- Unemployment rate (ILO definition): 3.7 (2021), 4.1 (2022)
- External trade (percent of GDP):
- Merchandise balance: 7.3 (2021), 7.2 (2022), 6.7 (2023), 6.0 (2024)
- Current account balance: 5.5 (2021), 6.2 (2022)
IMF Executive Board Concludes 2022 Article IV Consultation with the Netherlands — Press Release No. 23/63