OECD Economic Outlook May 2019, Country Notes: Netherlands

 185

Netherlands Economic growth is projected to slow considerably, to 1.6% in 2019 and 1.5% in 2020. A weakening external economic environment and increased international trade uncertainties are weighing on trade and investment growth. Deteriorating domestic conditions are contributing to projected labour market weakness, slow disposable income growth and tepid consumption.

Fiscal space should be utilised to stimulate growth, which will also help reduce internal euro area imbalances. Labour market reforms, such as expanding supplementary social security coverage for the self-employed and improving the fairness of the tax system, would improve inclusiveness and protect the job security of vulnerable workers.

Heightened uncertainty and weak external demand are weighing on growth Economic growth has weakened significantly. A sharp reversal in external demand throughout the second half of 2018 is having a large negative impact on trade growth and industrial production. Business confidence remains subdued and consumer confidence has been falling rapidly. Business investment slowed throughout the second half of 2018 and remains volatile. Slowing investment and a shrinking net trade balance pushed the current account surplus to nearly 12% of GDP in end-2018.

Private consumption has been robust, largely reflecting current labour market strength. Low unemployment and diminishing labour market slack are putting upward pressure on wages. Headline inflation has risen sharply reflecting the increased VAT rate, but core inflation is slowing somewhat. Housing price growth has moderated, following the increase in recent years.

Netherlands Housing prices are peaking and confidence is deteriorating Balance, s.a.¹ 30

Industrial production has fallen

Y-o-y % changes 15.0

Y-o-y % changes¹ 6

← Consumer confidence

25

12.5

5

20

10.0

4

15

7.5

3

10

5.0

5

2.5

1

0

0.0

0

-5

-2.5

-1

-10

House prices →

2015

2016

2017

2018

-5.0

0

2

2015

2016

2017

2018

-2

1. Three-month moving average.

Source: Statistics Netherlands (CBS).

StatLink 2 https://doi.org/10.1787/888933934774

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019

186 ď ź

Netherlands: Demand, production and prices

2015

2016

GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1 Total domestic demand Exports of goods and services Imports of goods and services Net exports1 Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation2 Unemployment rate (% of labour force) Household saving ratio, net3 (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

690.1 310.8 172.4 152.7 635.9 2.5 638.3 570.4 518.6 51.8 _ _ _ _ _ _ _ _ _

2018

2019

2020

Percentage changes, volume (2015 prices)

Current prices EUR billion

Netherlands

2017

2.1 1.1 1.3 -7.3 -0.9 0.1 -0.8 1.5 -2.1 2.8

3.0 1.9 1.1 6.2 2.6 -0.3 2.3 5.6 5.2 0.9

2.6 2.5 1.5 4.2 2.6 0.1 2.6 2.6 2.7 0.3

1.6 1.1 1.6 4.6 2.1 0.2 2.3 1.1 1.8 -0.4

1.5 1.1 2.0 1.4 1.4 0.0 1.4 2.0 2.0 0.2

0.5 0.1 0.6 6.0 9.9 0.0 76.6 61.9 8.1

1.2 1.3 0.8 4.9 9.0 1.2 69.8 56.9 10.5

2.2 1.6 1.0 3.8 9.1 1.5 64.5 52.4 10.8

2.4 2.2 1.5 3.6 9.2 1.2 61.9 49.8 11.1

1.4 1.4 1.4 3.9 9.9 0.8 60.2 48.1 10.6

1. Contributions to changes in real GDP, actual amount in the first column.

2. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

3. Including savings in life insurance and pension schemes.

Source: OECD Economic Outlook 105 database.

StatLink 2 https://doi.org/10.1787/888933935667

Policy measures should reduce imbalances and improve inclusiveness The current expansionary fiscal stance remains broadly appropriate given the deteriorating growth outlook, the large positive headline budget surplus and the favourable debt trajectory. Increased fiscal spending has provided some support to growth, although the level of spending in 2018 was much lower than was previously budgeted. The strong fiscal position could be further utilised to boost potential output through targeted investments in R&D and innovation and to mitigate the projected slowdown in growth, which would help to reduce the largest current account surplus as a share of GDP in the OECD. A further slowing of, or negative, housing price growth could contribute to vulnerabilities in the financial system, reflecting the currently high levels of household debt and the high exposure of domestic banks to mortgage lending. The accelerated phase-out of mortgage interest rate deductibility should be complemented with a further decrease in the loan-to-value ratio for new mortgages to reduce these vulnerabilities. Measures to increase the number of rental properties in the private residential market would help to alleviate supply issues in that segment.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION Š OECD 2019

ď ź 187 To improve the fairness of taxation and income security across different employment types, tax deductions for self-employment should be reduced and minimum sickness and disability insurance coverage for the self-employed should be introduced. To improve labour market inclusiveness, employment support should be targeted at vulnerable groups and a more coordinated approach to implementing activation policies would improve inter-regional labour mobility. Paid paternity leave should be further expanded and provisions to keep childcare affordable for two-earner households should be strengthened to address the large gender disparity in part-time work.

Growth is projected to slow sharply Growth is projected to slow in 2019 and remain subdued in 2020, reflecting modest economic growth in Europe and a rapid deterioration in consumer confidence. Private consumption will weaken and unemployment will rise gradually. Business investment is projected to soften, reflecting the worsening trade environment. Residential investment is expected to slow down sharply. Uncertainties related to Brexit represent sizeable negative risks to the projection. A sharper-than-expected deceleration in house price growth poses a significant risk to financial stability given high household indebtedness.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION Š OECD 2019