Dutch Current Account Surplus to Hit a Record €65bn in 2014
The Netherlands’ continuing success in exporting faces a number of challenges. This was the theme of a presentation entitled “Dutch Exports: Sustaining Success” ING Group Chief Economist Mark Cliffe delivered to the National Export Event on 14 November.
Current weakness in corporate investment a threat
The country’s rising current account surplus reflects not just its export prowess, but also the weakness of its domestic demand, which has been depressing its imports. As a result the current account surplus is set to hit a record €65bn, or 11% of GDP in 2014. According to Mark Cliffe, “this situation is not sustainable, particularly because the current weakness in corporate investment in the Netherlands threatens to undermine its export capacity in the long term”.
Like Germany, the Netherlands is also likely to face increasing foreign criticism if its current account surplus continues to increase. The EU Macroeconomic imbalance procedure specifies a upper threshold of 6% of GDP for the current account surplus.
Acceleration in world trade
Fortunately, there are early signs that business investment is beginning to turn around. This may allow the Netherlands to begin to capitalise on the acceleration in world trade which ING anticipates in the coming years. Mark Cliffe remarked “although emerging markets offer the best long term prospects, there are also more immediate opportunities in neighbouring countries like Germany, Poland and the UK”. ING is forecasting imports in those markets to grow robustly next year, by 4½, 12% and 7½ % respectively.
Netherlands facing challenges
In a report published to coincide with the presentation, ING’s economics team made the following points:
- The Dutch economy is extremely competitive, with a high and rising trade surplus
- Exports have led the economy’s recovery, with the SMEs leading the way (accounting for 67% of all exports)
- The Netherlands is particularly successful in Europe…
- …agrifood and chemicals account for much of the country’s surplus
- Nevertheless, the Netherlands faces some challenges
- Export growth is dominated by re-exports, not domestically produced exports
- Low market share in rapidly growing Asian markets
- The rising trade surplus also reflects weak domestic demand, which is holding down imports
- A record current surplus of 11% will fuel foreign criticism
- Weak domestic investment poses a longer term challenge to competitiveness and exports
- Longer term opportunities lie in emerging markets, but recent setbacks show the risks
- Traditional markets like the UK, US and even the Eurozone periphery offer shorter term possibilities
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