Netherland's Economic Outlook in Five Charts
IMF News, February 14, 2019
Source details
- Canonical URL
- Netherland's Economic Outlook in Five Charts
Other formats
Bibliographic details
- Published: February 14, 2019
Overview and recent performance
- Growth in the Netherlands has picked up in recent years.
- Unemployment has fallen sharply, reaching a historic low of 3.8 percent.
- Wages grew moderately and inflation remained subdued.
- Real wage and productivity growth have been slow, possibly exacerbated by the increasing share of short-term labor contracts.
- The high savings rate and low level of domestic investment by large multinationals, as well as the high debt and illiquid assets of households, are hindering a pickup in the country's growth potential.
External position and trade
- The current account surplus remains high at almost 10 percent of GDP, reflecting high corporate savings by mostly multinational corporations residing in the Netherlands.
- Slower global trade and expedited phasing-out of gas production are expected to lead to lower exports and a modest rebalancing in the short term.
- Returns on a rising net foreign assets position will preserve the large current account surplus over the medium term.
Household sector and domestic demand
- Low wage growth and sizeable labor income taxation are compressing disposable income and limiting domestic demand.
- Household debt remains high, even though households have positive net worth.
- Households are left too cash-constrained to effectively weather downturns and support rebalancing.
- Policy note: Scaling down mortgage interest deductibility beyond current plans would help address the debt bias but needs to go hand-in-hand with more affordable rental opportunities.
Fiscal position and constraints
- The Netherlands' fiscal position is strong, resulting in declining public debt and sizeable fiscal space.
- Fiscal policy is limited in its potential for rebalancing demand by national rules and capacity constraints.
- Attempts to fully use the available fiscal space in 2018 were unsuccessful due to difficulties with hiring against a background of low unemployment.
- Near-term budget plans imply greater spending.
- Public debt is projected to decline below 40 percent of GDP by 2024, reopening substantial fiscal space over the medium term.
Policy recommendations to support rebalancing and medium-term growth
- Boost disposable income by bringing it closer in line across different types of labor contracts.
- Further lower the weight of tax on labor.
- Foster productivity and wage growth.
- Promote the growth of small and medium-sized enterprises by:
- Expanding direct support to research and development.
- Investing in digitalization and lifelong learning.
- Establishing a business credit bureau.
Netherland's Economic Outlook in Five Charts — February 14, 2019