November 15, 2021
Washington, DC: On November 10, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Netherlands.
The Netherlands is experiencing a robust recovery in 2021, following a contraction of 3.8 percent in real GDP in 2020, which was less severe than the average in the Euro Area. The Dutch economy has been resilient thanks in part to a high rate of digitalization of activities that allowed a large share of the work force to work remotely, and the strong economic policy response since the start of the pandemic has mitigated the impact of containment measures. A strong recovery is underway, with real GDP being expected to surpass its pre-pandemic level by end-2021. The programs deployed to preserve jobs and incomes and support businesses were effective in containing the increase in unemployment while keeping bankruptcies at historically low levels. The labor market has tightened again, with the unemployment rate back near its pre-pandemic readings. Banks have retained their strong pre-pandemic capital position and non-performing loans have remained low,. Residential real estate valuations have kept increasing reflecting high demand and rigidities in housing supply.
The economy is forecast to grow by 4 percent in 2021 and 3.3 percent in 2022, led by strong consumption and investment, and supported by a high coverage of vaccines. Over the medium term the economy is projected to catch up to its pre-pandemic trend. Given the recent evolution of the pandemic and the vaccination rollout, the authorities have lifted most sanitary restrictions and introduced a “corona pass.” Also, in view of the tightness of the labor market, they have phased out the main broad policy support programs as of October 1, while retaining targeted support schemes for those businesses still facing restrictions.
The unprecedented policy response to the pandemic resulted in a large fiscal deficit in 2020 and 2021, following several years of surpluses. However, the Dutch fiscal position remains strong, with the public debt to GDP ratio expected to remain below 60 percent at end 2021. Fiscal deficits are projected to gradually vanish in the next several years and the public debt ratio to fall below 50 percent by 2026. The current account surplus narrowed to 7.0 percent of GDP in 2020, from 9.4 percent of GDP in 2019, as an improving trade balance was offset by deteriorating primary and secondary income accounts, but the surplus is expected to rise somewhat in 2021 and over the medium term.
Executive Board Assessment [2]
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for their vigorous policy response to the pandemic, which helped limit its health, economic, and financial impacts. Directors noted that a strong recovery is underway against the backdrop of pandemic-related uncertainty and supply chain disruptions. In this context, they welcomed the transition to more targeted policy support and the authorities’ readiness to react should substantial downside risks materialize.
Going forward, Directors stressed the need to guide the economy toward normalization and facilitate reallocation of factors of production. Improved debt restructuring processes for viable firms and the establishment of a credit bureau are priorities in this regard.
Directors broadly supported using the available fiscal space to foster a more productive, greener, and more inclusive economy, which could also contribute to external rebalancing. They welcomed the introduction of the National Education Plan and the National Growth Fund, and encouraged additional investments in education and public funding for research and development. The ongoing reform of international and capital taxation should help fight tax avoidance globally. Directors also recommended further efforts to address labor market duality and implement the agreed pension reform, noting that progress in these areas would help boost productivity and enhance intergenerational equity.
Directors observed that the financial system remains sound while imbalances in the real estate market warrant heightened vigilance. They encouraged continued strong supervision to prevent undue risk-taking in the low interest rate environment, including through the appropriate use of macroprudential tools. Directors welcomed the activation of risk-based floors for residential mortgage lending and encouraged further efforts to address supply shortages in the housing market.
Directors commended the authorities for their ambitious targets for reducing greenhouse gas emissions. They recommended that the authorities consider additional measures to complement existing policies, including instruments to reinforce carbon pricing. Directors underscored the need to safeguard vulnerable households from the costs of the transition.
