Netherlands: Risk Assessment
Country Risk Rating
|A2||The political and economic situation is good. A basically stable and efficient business environment nonetheless leaves room for improvement. Corporate default probability is low on average.|
Business Climate Rating
|A1||The business environment is very good. Corporate financial information is available and reliable. Debt collection is efficient. Institutional quality is very good. Intercompany transactions run smoothly in environments rated A1.|
Domestic demand driving growth
The contribution to growth by the internal drivers of the economy grew sharply in 2015. Investment rose vigorously, especially in the residential construction sector. Household confidence firmed up in response to the recovery of the property market and lower inflation, leading to an upturn in consumption, despite a still very high level of indebtedness (215% of disposable income at end 2014). The government's decision to reduce natural gas extraction, because of the risk of earthquakes, has however dampened export momentum.
The high level of household and business confidence, and the continued increase in production capacity should maintain domestic demand at fairly robust levels in 2016. Growth is likely to increase at a pace similar to that of 2015. While inflation is on an upward trend, the government's announced tax cuts should boost households' disposable income. The rise in labor productivity and low real interest rates are expected to sustain investment. The contribution of net external demand is set to remain very weak or even become slightly negative.
Imports are now rising faster than exports
The Dutch economy is very open with regard to trade and the country ranks among the top ten exporters in the world. It mainly supplies refined petroleum, natural gas, vehicles, electrical and IT equipment. Half of these sales are re-exports, the country playing the role of a hub for European trade. However, the outlook for external trade has slightly deteriorated. So, buoyant domestic demand will continue to sustain the rise in imports while sluggish world demand, associated in particular with the slowdown in emerging economies, is likely to restrain the expansion of exports, even if to a limited degree, because of the country's exposure to the German industrial sector. By contrast, the weakness of the euro is likely to continue to be a positive factor.
Public finances remain healthy, the unemployment rate has receded and inflation is rising
After dropping below the 3% threshold in 2013, the budget deficit again declined in 2015 thanks to lower social spending and transfers. The reduction in gas production decided in January 2015 has however limited the improvement in public accounts. Lower social welfare benefits should help again to reduce the deficit in 2016 despite the government's announced tax cuts. Risks such as a larger than expected cut in gas production or the fact that the costs of welcoming the migrants could be higher than the sums budgeted could put pressure on these results. Apart from these risks, the ratio of the public debt to GDP, lower than the euro zone average, is expected to fall slightly in 2016 on the back of the decline in the deficit and the increase in national wealth.
The unemployment rate, down since early 2014, has tended to stabilize in the second half of 2015 at around 6.9%. It is expected to fall slightly in 2016 as employment rises. Inflation, which fell into negative territory at the start of 2015, has started to edge up since due to higher prices for services. The fall in energy and food prices, which curbed this resurgence of inflation in 2015, is expected to wear off in 2016 with the general price level continuing to rise.
Situation of the banks and businesses consolidating
Hit in recent years by the 2007-08 financial crisis, the deterioration of the local property market and the recession, the banking system is gradually emerging from restructuring. The banks continue to make adjustments in a context of tighter capital and liquidity requirements. Their capitalization levels are now well above the required minimum. Lending continues to fall, even though consumer lending seems to have reached its lowest point at the start of 2015 and the demand for credit is now rising. The financial situation of businesses has gradually improved. Their margins recently increased thanks to lower energy prices and competitiveness gains due to the fall of the euro. Insolvencies peaked in May 2013 and have fallen back substantially since. Over the first ten months of 2015, they were down 22% compared to the same period in 2014.