IMF Executive Board Concludes 2021 Article IV Consultation the Netherlands
IMF News, November 15, 2021
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- Published: November 15, 2021
Economic outlook and recovery
- Real GDP contracted by 3.8 percent in 2020.
- The economy is forecast to grow by 4 percent in 2021 and 3.3 percent in 2022.
- Real GDP was expected to surpass its pre-pandemic level by end-2021.
- Recovery drivers:
- High rate of digitalization enabling remote work.
- Strong economic policy response since the start of the pandemic.
- High coverage of vaccines supporting reopening.
- Labor market:
- Programs preserved jobs and incomes and supported businesses, containing unemployment increases and keeping bankruptcies at historically low levels.
- The labor market has tightened again, with the unemployment rate back near its pre-pandemic readings.
- Policy adjustments:
- Authorities lifted most sanitary restrictions and introduced a “corona pass.”
- Main broad policy support programs were phased out as of October 1, while targeted support schemes remain for businesses still facing restrictions.
- Medium-term projection: the economy is projected to catch up to its pre-pandemic trend.
Fiscal position and external balances
- The pandemic response resulted in a large fiscal deficit in 2020 and 2021 after several years of surpluses.
- Public debt:
- Public debt to GDP ratio expected to remain below 60 percent at end 2021.
- Public debt ratio projected to fall below 50 percent by 2026.
- Fiscal trajectory:
- Fiscal deficits are projected to gradually vanish in the next several years.
- Current account:
- Current account surplus narrowed to 7.0 percent of GDP in 2020 from 9.4 percent of GDP in 2019.
- The surplus is expected to rise somewhat in 2021 and over the medium term.
Financial sector and housing market
- Banks retained strong pre-pandemic capital positions and non-performing loans have remained low.
- Residential real estate valuations have continued increasing, reflecting high demand and rigidities in housing supply.
- Directors noted imbalances in the real estate market warrant heightened vigilance.
- Macroprudential stance:
- Directors encouraged continued strong supervision to prevent undue risk-taking in the low interest rate environment, including appropriate use of macroprudential tools.
- Directors welcomed the activation of risk-based floors for residential mortgage lending.
- Recommended supply-side measures to address housing supply shortages.
Executive Board Assessment and policy recommendations
- Directors commended vigorous policy response to the pandemic for limiting health, economic, and financial impacts.
- Directors welcomed transition to more targeted policy support and authorities’ readiness to react if substantial downside risks materialize.
- Priorities to guide normalization and reallocation of factors of production:
- Improve debt restructuring processes for viable firms.
- Establish a credit bureau.
- Use of fiscal space:
- Directors broadly supported using available fiscal space to foster a more productive, greener, and more inclusive economy and to contribute to external rebalancing.
- Welcomed the introduction of the National Education Plan and the National Growth Fund.
- Encouraged additional investments in education and public funding for research and development.
- Taxation and labor:
- Ongoing reform of international and capital taxation should help fight tax avoidance globally.
- Recommended further efforts to address labor market duality and implement the agreed pension reform to boost productivity and enhance intergenerational equity.
- Climate policy:
- Directors commended ambitious targets for reducing greenhouse gas emissions.
- Recommended considering additional measures to complement existing policies, including instruments to reinforce carbon pricing.
- Underscored the need to safeguard vulnerable households from the costs of the transition.
Selected economic indicators, 2019–2022 (as reported)
- National accounts (percent change)
- Gross domestic product: 2.0 (2019); -3.8 (2020); 4.0 (2021); 3.3 (2022 Proj.)
- Private consumption: 0.9 (2019); -6.6 (2020); 4.3 (2021); 4.1 (2022 Proj.)
- Public consumption: 2.8 (2019); 1.0 (2020); 2.1 (2021)
- Gross fixed investment: 6.2 (2019); -4.1 (2020)
- Total domestic demand: 3.0 (2019); -4.3 (2020); 3.4 (2021)
- Exports of goods and nonfactor services: -4.8 (2019); 5.2 (2020)
- Imports of goods and nonfactor services: -5.4 (2019); 4.6 (2020); 4.5 (2022 Proj.)
- Net foreign balance¹: -0.8 (2019); 0.0 (2020); 0.3 (2021)
- Output gap (percent of potential output): 0.6 (2019); -1.8 (2020); -1.5 (2021)
- Prices, wages, and employment
- Consumer price index (HICP): 2.7 (2019); 1.1 (2020); 1.9 (2021); 1.7 (2022 Proj.)
- GDP deflator: 2.3 (2019); 1.6 (2020)
- Hourly compensation (manufacturing): 2.4 (2019); 6.6 (2020)
- Unit labor costs (manufacturing): 0.4 (2019)
- Employment
- Unemployment rate (ILO definition): 3.8 (2019)
- NAIRU: (value not provided)
- External trade
- Merchandise balance (percent of GDP): 7.4 (2019); 8.1 (2020); 8.2 (2021); 7.9 (2022 Proj.)
- Current account balance (percent of GDP): 9.4 (2019); 7.0 (2020); 8.0 (2021); 8.7 (2022 Proj.)
- General government accounts (percent of GDP)
- Revenue: 43.6 (2019); 41.1 (2020); 42.0 (2021); 42.4 (2022 Proj.)
- Expenditure: 45.4 (2019); 48.2 (2020); 44.8 (2021)
- Net lending/borrowing: 2.5 (2019); -6.1 (2020); -2.3 (2021)
- Primary balance: 3.2 (2019); -3.9 (2020); -5.8 (2021); -2.1 (2022 Proj.)
- Structural balance²: 1.8 (2019); -3.2 (2020); -5.2 (2021); -1.9 (2022 Proj.)
- Structural primary balance²: -2.6 (2019); -1.4 (2020)
- General government gross debt: 47.4 (2019); 52.5 (2020); 57.9 (2021); 56.4 (2022 Proj.)
- Sources cited in the tabulation: Dutch official publications, IMF, IFS, and IMF staff calculations.
- Notes:
- ¹ Contribution to GDP growth.
- ² In percent of potential GDP.
IMF Communications Department press release, November 15, 2021 — Executive Board concluding summary of the 2021 Article IV consultation with the Netherlands.
