19. THE NETHERLANDS
Turning the corner?
After some promising signs in the second half of 2013, the economic recovery of the Netherlands has
wavered in 2014 and the outlook remains fragile. Nevertheless, real GDP growth this year is expected
to reach 0.9% and rise to 1.4% in 2015, supported by positive developments in the housing and labour
markets. The general government deficit is expected to continue declining.
Volatile growth in the early stages of an upturn
The second half of 2013 was a turning point for the
Dutch economy. Soft indicators signalled a sharp
improvement, which was confirmed particularly in
the business sector, where investment grew
significantly. At the same time, private
consumption picked up, with housing market
developments supporting the return to more sound
domestic economic fundamentals. Growth swings
in Q1 2014 appear to have been mainly the
outcome of incidental factors, such as low gas
consumption due to the relatively warm winter.
The sizeable drop in investment at the beginning of
2014 was related to a surge in company car
purchases at the end of 2013, driven by the expiry
of favourable tax arrangements.
A shift to domestic demand supports the
hesitant recovery
Building on positive developments since the
second half of 2013, domestic demand is expected
to contribute modestly to economic growth this
year and to take over as the main driver of growth
in the years ahead. At the same time, the recent
pause in the improvement of soft indicators seems
to suggest a fragile and moderate pick-up over the
short to medium term.
After two consecutive years of significant
contraction, private consumption is forecast to
stabilise in 2014 and to pick up over 2015 and
2016. Following several years of negative
developments, real disposable income is expected
to increase in 2014, supported by real wage
increases (in particular for government employees
as of 2015), lower taxes on labour, and lower
pension and health care premia. In addition, a
gradually recovering housing market, buttressed by
measures
targeted
at
wealth-constrained
households reduces pressures on savings.
Investment is expected to evolve in line with
economic
growth,
accelerating
industrial
production, and a capacity utilisation ratio that
94
although still below its long-term average, is
rising.
As domestic demand takes hold, imports should
also rise. As a result, the contribution of net
exports to growth will likely decline, as Dutch
exports are expected to grow broadly in line with
the recovery in world trade.
Unemployment
muted
stabilises,
inflation
remains
Since mid-2013, the unemployment rate has been
relatively stable, hovering around 7%, although it
did increase slightly in the first quarter of this year.
In recent months, however, the unemployment rate
has started to fall, more than anticipated, although
this is partly due to a decline in the labour force.
The unemployment rate is forecast to average at
6.9% for 2014 and to gradually decline over the
forecast horizon. The employment outlook remains
weak in the short term, as labour markets tend to
respond slowly to changes in the business cycle.
9200
Graph II.19.1: The Netherlands - Labour market
developments
1000s of persons
forecast
%
8
(annual average)
9000
7
8800
8600
6
8400
8200
5
8000
7800
4
10
11
12
13
Labour force (lhs)
Unemployment rate (rhs)
14
15
16
Employment (lhs)
HICP inflation is very low, hovering around 0.3%.
In line with trends in import prices, moderate real
wage gains and the very gradual pickup in
domestic demand over the forecast horizon,
inflation is expected to reach 0.4% this year and to
record only modest increases thereafter to 0.8% in
2015 and 1.1% in 2016. In the short run, the
Member States, The Netherlands
rebound in domestic demand is unlikely to raise
inflationary pressures, given the scale of excess
capacity.
Downside risks persist
The biggest risk to the macroeconomic scenario
stems from the possibility that adverse global
developments could spill over to the very open
economy of the Netherlands, unsettling its homegrown recovery. If business confidence
deteriorates, investment would suffer and the
labour market’s recovery may be more drawn out,
constraining gains in disposable income and thus
in consumption. Moreover, the household debt
overhang may continue to weigh on growth more
heavily than assumed.
Deficit set to decline further
In 2014, the general government deficit is expected
to rise slightly to 2.5% of GDP, from 2.3% in
2013. Although one-off measures of around 0.6%
of GDP improved the deficit in 2013, no such
measures are planned in 2014. Non-gas
government revenues are foreseen to increase in
line with the improving economy, and structural
savings of around 0.1% of GDP should be realised
in the health care sector in 2014. Despite the
declining fiscal consolidation efforts, the headline
government deficit is expected to decrease further,
to respectively 2.1% and 1.8% of GDP in 2015 and
2016, on the back of improvement in economic
activity. The forecast takes into account the
measures detailed in the draft budget for 2015 as
well as the measures announced in the multiannual budget agreement (‘Regeerakkoord’). As
domestic demand recovers, growth becomes more
tax-rich; in addition, savings from the planned
decentralisation of social security and long-term
care are also expected.
Following an improvement of 1.6% of GDP in
2013, the structural balance is expected to
marginally improve in 2014 and to deteriorate by
0.3% of GDP in 2015. The gross government debt
ratio is forecast to further increase in 2015, before
declining again to 69.9% in 2016. Risks to the
fiscal forecast largely mirror macroeconomic
uncertainties but also stem from some of the fiscal
measures in 2014 (notably the temporary tax
reduction on accrued severance payments) and
from the planned expenditure savings in 2015.
Table II.19.1:
Main features of country forecast - NETHERLANDS
2013
GDP
Private Consumption
Public Consumption
Gross fixed capital formation
of which: equipment
Exports (goods and services)
Imports (goods and services)
GNI (GDP deflator)
Contribution to GDP growth:
Annual percentage change
bn EUR Curr. prices
% GDP
95-10
2011
2012
2013
2014
2015
2016
642.9
100.0
2.3
1.7
-1.6
-0.7
0.9
1.4
1.7
289.6
45.0
1.9
0.2
-1.4
-1.6
0.0
1.1
1.7
169.3
26.3
3.0
-0.2
-1.6
-0.3
-0.5
0.1
0.1
117.3
18.2
2.3
5.6
-6.0
-4.0
2.1
3.3
4.3
34.4
5.4
3.4
17.0
-3.4
-3.0
1.2
3.6
4.1
533.2
82.9
5.1
4.4
3.3
2.0
3.4
3.3
4.6
466.8
72.6
5.4
3.5
2.8
0.8
3.0
3.4
5.2
644.2
100.2
2.3
1.1
-0.4
-1.7
0.4
1.4
1.6
2.2
1.1
-2.3
-1.5
0.3
1.1
1.6
0.0
-0.4
0.1
-0.3
-0.1
0.0
0.0
0.1
0.9
0.6
1.1
0.7
0.3
0.1
1.1
0.6
-0.6
-1.4
-0.9
0.1
0.6
4.3
4.4
5.3
6.7
6.9
6.8
6.7
3.0
2.4
2.6
2.3
2.6
0.6
1.8
1.9
1.3
3.6
1.6
0.7
-0.7
0.8
-0.3
1.2
2.3
0.5
0.7
-1.9
-1.1
14.5
13.3
13.5
14.7
15.9
15.6
15.7
2.2
0.1
1.3
1.1
0.0
1.2
1.9
2.0
2.5
2.8
2.6
0.4
0.8
1.1
0.5
-1.7
-0.5
0.6
-0.4
0.2
0.8
7.9
10.1
10.7
11.6
11.5
11.8
12.2
6.0
7.1
8.8
8.5
7.8
7.7
7.7
5.7
6.8
7.8
7.9
7.1
7.5
7.8
-1.7
-4.3
-4.0
-2.3
-2.5
-2.1
-1.8
-1.6
-3.8
-2.2
0.0 -
-0.5
-0.8
-1.1
-
-3.8
-2.2
-0.6 -
-0.5
-0.8
-1.1
55.5
61.3
66.5
68.6
69.7
70.3
69.9
Domestic demand
Inventories
Net exports
Employment
Unemployment rate (a)
Compensation of employees / f.t.e.
Unit labour costs whole economy
Real unit labour cost
Saving rate of households (b)
GDP deflator
Harmonised index of consumer prices
Terms of trade goods
Trade balance (goods) (c)
Current-account balance (c)
Net lending (+) or borrowing (-) vis-a-vis ROW (c)
General government balance (c)
Cyclically-adjusted budget balance (c)
Structural budget balance (c)
General government gross debt (c)
(a) Eurostat definition. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
95