IMF Executive Board Concludes 2024 Article IV Consultation with Kingdom of the Netherlands–the Netherlands
IMF News, April 8, 2024
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- Published: April 8, 2024
Executive summary
- The Executive Board concluded the Article IV consultation with Kingdom of the Netherlands–the Netherlands and endorsed the staff appraisal without a meeting.
- The economy cooled in 2023 after two years of strong recovery, reflecting the energy shock, tighter financial conditions, and a slowdown in key trading partners, particularly Germany.
- Growth is expected to regain momentum in 2024, driven by higher private consumption and external demand, while high interest rates will weigh on business and residential investment.
- Core inflation remains elevated due to a tight labor market, robust wage growth, and healthy profit margins.
- Downside risks dominate amid high uncertainty, including a more severe housing market correction, a sharper slowdown in trading partner growth, deeper geo-economic fragmentation, and geopolitical tensions.
Growth, inflation, and external position
- Growth trajectory:
- 2022: Gross domestic product 4.3
- 2023: Gross domestic product 0.1
- 2024 (Proj.): Gross domestic product 0.6
- 2025 (Proj.): Gross domestic product 1.3
- Inflation and wages:
- Consumer price index (HICP): 2022: 11.6; 2023: 4.1; 2024 (Proj.): 2.7; 2025 (Proj.): 2.1
- GDP deflator: 2022: 5.5; 2023: 7.7; 2024 (Proj.): 1.9; 2025 (Proj.): 2.2
- Hourly compensation (manufacturing): 2022: 5.4; 2023: 5.9
- Unit labor costs (manufacturing): 2022: -6.2; 2023: 3.9; 2024 (Proj.): 3.5
- External position:
- Exports of goods and nonfactor services: 2022: 4.5; 2023: -1.3; 2024 (Proj.): 0.2; 2025 (Proj.): 2.3
- Imports of goods and nonfactor services: 2022: 3.8; 2023: -0.8; 2024 (Proj.): 3.0
- Net foreign balance (contribution to GDP growth) 2022: 1.0; 2023: -0.6; 2024 (Proj.): -0.5; 2025 (Proj.): -0.2
- Current account balance (percent of GDP): 2022: 9.3; 2023: 10.2; 2024 (Proj.): 9.1
- Executive Board assessment: The external position in 2023 is assessed to have been stronger than the level implied by fundamentals and desirable policies.
Fiscal policy assessment and recommendations
- 2024 budget stance:
- Described as moderately expansionary, reflecting higher spending on social transfers, defense, and public investment.
- Social-support measures are generally well-targeted; extension of reduced excise duties is not and its phase-out this year is welcome.
- Efforts to reduce implicit fuel subsidies are ongoing and welcome.
- Near-term fiscal guidance:
- Fiscal policy should balance support for inflation reduction with downside risks to growth.
- Given the higher cost of underestimating core inflation persistence, adopting a non-expansionary fiscal stance is warranted.
- While revenue overperformance and some underspending may deliver the desired stance, proactively identifying and implementing deficit-reducing measures would send a stronger signal.
- Recommended actions include unwinding untargeted energy measures and rationalizing fossil fuel subsidies.
- Fiscal policy should be agile and flexible if risks materialize.
- Medium-term fiscal sustainability:
- Current public debt/GDP ratio is low and debt is sustainable, but significant pressures need to be addressed over the medium term.
- Staff support the authorities’ objective to stabilize medium-term debt at its 2028 level.
- Required adjustment should be high quality, not achieved by lowering overall investment spending, and should protect or ideally increase investment on climate, labor markets, housing, and education.
- Structural constraints to investment implementation should be addressed to reduce policy uncertainty.
Structural reforms and climate policy
- Pensions: Linking the retirement age to longer life expectancy is an important instrument to support fiscal sustainability.
- Healthcare: Consider a combination of efficiency gains, adjustments of the basic policy package, and higher co-payments to generate savings while mitigating risks and supporting solidarity.
- Climate policy:
- Tilt balance away from fossil-fuel subsidies towards higher carbon pricing to achieve climate goals efficiently while supporting fiscal sustainability and allowing for more targeted social spending.
- Measures to invest in clean energy and enhance energy security are commended.
- Authorities’ commitment to enhance climate mitigation, transition policies, and adaptation is welcomed; ambitious climate goals appear achievable.
- Other structural reforms:
- Tackle labor market duality to increase labor participation and productivity.
- Incentivize part-time workers to increase hours worked and strengthen the framework for self-employed workers.
- Promote training and labor mobility towards priority sectors (green transition, digitalization, health).
- Speed up adoption of new technology (including AI) and optimize international labor where needed.
- Investment in digitalization will help attenuate labor shortages.
- Streamline tax expenditures to help safeguard sustainability.
Financial sector resilience and recommendations
- Overall: Financial sector generally resilient to adverse scenarios, but risks are elevated and warrant continued monitoring.
- Main risks identified: High household and corporate debt, real estate, NBFIs, and climate change.
- FSAP 2023 recommendations:
- Further adjustments to borrower-based measures.
- Adapt supervisory approaches to a rapidly changing market environment.
- Equip supervisory authorities with necessary resources, access to technologies, analytical tools, and granular data.
- Ensure operational readiness of resolution plans and crisis preparedness and management.
Risks and scenarios
- Downside risks that dominate:
- A more severe housing market correction.
- A sharper slowdown in trading partner growth.
- Deeper geo-economic fragmentation.
- Geopolitical tensions.
- Higher core inflation becoming persistent if higher wages lead to second-round effects.
- Policy implication: Given high uncertainty, fiscal policy should be agile and flexible; prioritize non-expansionary stance to guard against persistent core inflation and be prepared to adjust if downside risks materialize.
Key economic indicators (selected) — 2022–25 (percent change, unless otherwise indicated)
- National accounts:
- Gross domestic product: 2022: 4.3; 2023: 0.1; 2024 (Proj.): 0.6; 2025 (Proj.): 1.3
- Private consumption: 2022: 6.5; 2023: 0.4; 2024 (Proj.): 0.5
- Public consumption: 2022: 1.6; 2023: 3.1; 2024 (Proj.): 2.8; 2025 (Proj.): 2.0
- Gross fixed investment: 2022: 1.8; 2023: 1.5; 2024 (Proj.): -1.1
- Total domestic demand: 2022: 3.7; 2023: 0.8; 2024 (Proj.): 1.2; 2025 (Proj.): 1.7
- Prices, wages, and employment:
- Consumer price index (HICP): 2022: 11.6; 2023: 4.1; 2024 (Proj.): 2.7; 2025 (Proj.): 2.1
- GDP deflator: 2022: 5.5; 2023: 7.7; 2024 (Proj.): 1.9; 2025 (Proj.): 2.2
- Hourly compensation (manufacturing): 2022: 5.4; 2023: 5.9
- Unit labor costs (manufacturing): 2022: -6.2; 2023: 3.9; 2024 (Proj.): 3.5
- Unemployment rate (ILO definition): 2022: 3.6; 2023: 4.2
- NAIRU: 2022: 5.2; 2023: 5.0
- External trade (percent of GDP):
- Merchandise balance: 2022: 8.8; 2023: 7.2; 2024 (Proj.): 6.8
- Current account balance: 2022: 9.3; 2023: 10.2; 2024 (Proj.): 9.1
- General government accounts (percent of GDP):
- Revenue: 2022: 43.4; 2023: 43.0; 2024 (Proj.): 43.2
- Expenditure: 2022: 43.5; 2023: 44.1; 2024 (Proj.): 45.0; 2025 (Proj.): 45.3
- Net lending/borrowing: 2022: -0.1; 2023: -2.0; 2024 (Proj.): -2.2
- Primary balance: 2022: 0.3; 2023: -1.4
- Structural balance (in percent of potential GDP): 2022: -0.7; 2023: -1.7; 2024 (Proj.): -1.8
- Structural primary balance (in percent of potential GDP): 2022: 0.0; 2023: -1.0; 2024 (Proj.): -0.9
- General government gross debt: 2022: 50.1; 2023: 47.2; 2024 (Proj.): 47.7; 2025 (Proj.): 48.2
Source: Press Release No. 24/106, IMF Communications Department, April 8, 2024.
