Netherlands: Risk Assessment
Country Risk Rating
Business Climate Rating
- Port activity (Rotterdam, leading European port)
- Good competitiveness indicators
- Diversified exports and external accounts in surplus
- High-quality infrastructure
- High levels of household savings: net financial assets = 200% of GDP
- Economy reliant on European economic cycle
- Exposure to the UK; Brexit-related risks
- Households and banks reliant on property market
- Concentration of wealth in housing and pension funds; lack of liquidity
- Aging population; high cost of healthcare
- High taxation of labor
Growth Driven by Internal Demand and by Expansionary Fiscal Policy
Activity is expected to continue to grow at a very dynamic pace in 2018, and is expected to be higher than 2% for the fourth consecutive year. The biggest growth contributions will likely be delivered by private consumption and investment, followed by public consumption. These trends are supported by an expansionary fiscal policy package, which was agreed on by the new four-party government. This package includes lower income taxes and higher expenditures in the areas of social affairs, defense, and education, and aims to attract higher private expenditures as well.
Household consumption is notably driven by very dynamic growth in employment, with an approximate 4% decrease in unemployment over the course of 2018. Investment outlays by corporations are driven by the fact that capacity utilization rates reached their pre-crisis levels again. One key issue to observe carefully is the Dutch property market in liaison with the development of private household debt: House prices went up by more than 20% from mid-2013 and are back to their pre-crisis level. Despite the dynamic increase in house prices, this trend is probably not debt-driven, as total mortgage debt is hardly growing. Furthermore, household debt as a percentage of net disposable income is on a downward trend. According to OECD data, this ratio stood at 270.1% in 2016. Admittedly, this is a very high level in terms of international comparison, but it is almost 24 percentage points less than in 2010. The very good macroeconomic environment is reflected in the strong downward pressure on business insolvencies. Coface forecasts a fifth decrease in a row in 2018. Bankruptcies are expected to fall by 10%, after a decrease of more than 20% in 2017.
General Government and Current Account Balance in Surplus
The Dutch economy is very open regarding trade, with exports of goods and services accounting for more than 150% of GDP, and the country being among the top ten exporters in the world. It mainly supplies agro-food products (plants, flowers, dairy products, meat, fruit, and vegetables), chemicals, medication, and medical equipment, refined oil, IT and telephone equipment, natural gas, agricultural and construction machinery, electrical and electronic components, equipment for printing and semiconductor manufacture. However, half of these sales are re-exports, as the country acts as a hub for European trade. Although import growth is picking up due to dynamic growth in Dutch incomes, the trade surplus will likely remain above 10% of GDP. As perspectives for world trade improved significantly in 2017, Dutch exports have been boosted as well. Trade in services, together with transport, tourism, royalties, and services to businesses, will likely remain slightly in negative figures. The net financial account balance is negative, although FDIs in the Netherlands increased over the last two years. On the other hand, Dutch investment abroad was even higher. Finally, the current account surplus is expected to increase into double-digit area. Thanks to recurrent current account surpluses, the country can post a net creditor position equivalent to about 70% of GDP. Fiscal policy stance has been loosened with the formation of the new government, but despite planned higher government expenditures from 2018 onwards, the general government balance is expected to remain in surplus. As a consequence, general government gross debt decreased below the Maastricht threshold of 60% in 2017.
After Long Negotiations, a Four-Parties Coalition was Built Up
Seven months after the general elections, the re-elected Prime Minister Mark Rutte was able to build a new government, comprised of his liberal VVD party, the left-liberal party D66, and the two Christian parties: CDA and Christenunie. This coalition has a majority of only one seat in the parliament in The Hague; and combined with wide-spread political interests across the four-party government, a premature break-up is within the realms of possibility. In such a difficult political environment, far-reaching reforms are highly unlikely.