OECD Economic Surveys Netherlands June 2021 OVERVIEW http://www.oecd.org/economy/netherlands-economic-snapshot/ This document, as well as any data and any map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. 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Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected] of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. 8 Executive summary OECD ECONOMIC SURVEYS: NETHERLANDS 2021 © OECD 2021 9 The COVID-19 pandemic drags down saving in 2020, pent-up demand will drive the initial the economy pick-up. However, increased pension premiums and rising unemployment as support measures are The Dutch economy experienced a severe phased out, will hold back private consumption contraction in 2020, reversing six years of strong growth. Business investment will improve, but growth. The spring COVID-19 outbreak was continues to be held back by reflecting lingering brought under control while still allowing for most uncertainty. Increased leverage over the crisis is a economic activity to continue subject to social further risk to private investment. distancing and hygiene measures. This led to a less pronounced contraction than in other countries Table 1. The economy will slowly recover (Figure 1). Effective support policies and a high (Annual growth rates, % unless specified) degree of digitalisation and teleworking already before the pandemic further dampened the blow. 2020 2021 2022 Resurgence of the virus in the autumn led to stricter Gross domestic product -3.7 2.7 3.7 measures but the economic downturn was limited Private consumption -6.4 -0.4 6.1 as businesses and workers were able to adapt. Government consumption 0.6 2.1 1.4 Gross fixed capital formation -3.6 6.3 3.8 Figure 1. The economy contracted less than Exports -4.3 4.7 3.8 elsewhere Imports -4.3 4.0 4.2 Unemployment rate (%) 3.8 4.1 4.7 Real GDP, Index Q1 2015=100 Consumer price index 1.1 1.8 1.5 115 115 Current account balance (% of GDP) 7.8 8.8 8.9 Netherlands Germany 110 110 General government fiscal balance (% of -4.3 -6.1 -2.5 United Kingdom OECD GDP) 105 105 General government gross debt (% of GDP, 54.5 58.5 58.8 100 100 Maastricht definition) 95 95 Source: OECD Economic Outlook: Statistics and Projections (database). 90 90 85 85 Fiscal prudence up to the crisis provided room 80 80 for a strong government response. Automatic 2010 2012 2014 2016 2018 2020 stabilisers were allowed to operate and generous Source: OECD Economic Outlook: Statistics and Projections discretionary support measures were swiftly (database). introduced, resulting in a hike in public debt StatLink 2 https://stat.link/fjlbyh (Figure 2). There is room to maintain accommodative fiscal policy until the recovery is Unemployment increased only slightly, aided self-sustained, but ageing pressures call for by quickly implemented policy support structural reform and consolidation in the long run. measures for firms. The measures included wage The financial sector has shown few signs of subsidies and the coverage of fixed costs, loan stress so far and banks have continued to guarantees and deferred tax payments. These provide credit throughout the pandemic. measures have so far prevented a wave of Pension funds funding ratios have long been under bankruptcies, but can hinder necessary structural pressure from persistently low interest rates. High change if kept in place too long. household debt is a source of macroeconomic The recovery will be gradual and vulnerability. Both first-time buyers and existing subject to risks homeowners are borrowing more relative to their income than before as house prices have Output is projected to gradually improve in continued to increase, but the share of non- 2021 and 2022 (Table 1), although it remains performing loans has remained low. contingent on developments of the health situation Macroprudential regulations and a mortgage and the distribution of vaccines. Following high guarantee fund have reduced housing-related OECD ECONOMIC SURVEYS: NETHERLANDS 2021 © OECD 2021 10 financial risks, but a loan to value limit of 100% owing to the COVID-19-related economic crisis, the remains high in international comparison. reduction of coal power capacity and other measures. For sectors not covered by the EU Figure 2. The budget deficit and public debt emission trading system, CO2 prices vary by have increased substantially emission sources and fuels. % of GDP 4 80 Figure 3. Emission reduction targets call for additional policies 2 70 Megatons of CO² equivalent 0 60 240 240 -2 50 -4 40 210 210 -6 30 PBL baseline projection General government net lending (LHS) 180 180 Gross public debt, Maastricht criterion (RHS) -8 20 NLD Climate Act 49% 2008 2010 2012 2014 2016 2018 2020 2022 150 150 Urgenda 25% Source: OECD Economic Outlook: Statistics and Projections. 120 120 StatLink 2 https://stat.link/udqi58 90 90 Investments are needed for 1990 1995 2000 2005 2010 2015 2020 2025 2030 sustainable growth Note: The targets are percentage cuts compared to 1990 values. Source: PBL Netherlands and RIVM. More could be done to improve the business https://stat.link/kyxlfc climate. Regulations are in general lean, and StatLink 2 insolvency proceedings have recently been Excessive nitrogen deposits in natural reformed. Increased teleworking and the Internet of preservation areas limit the available nitrogen Things require increased bandwidth both in fixed space for new developments, slowing down and mobile connections. new investment projects. Another High Court Policies support demand for social and owner- ruling in 2019 resulted in the re-evaluation of occupied housing but supply constraints result permits for a range of nitrogen emitting activities, in rising prices and rationing. Most public and notably for construction and agriculture projects private rental housing is subject to rent controls and near natural preservation areas. To allow important rationing. Around half of the population is eligible infrastructure projects to resume, short-term for social housing, which is mostly supplied by measures such as reducing speed limits and housing corporations on state guarantees. Owner- paying farmers to reduce livestock were occupied housing enjoys favourable tax treatment introduced. Multiple instruments are being put in driving up prices. As a result, low- and middle- place, and transfer of emission permits is allowed. income households, notably single persons, that do not qualify for social housing and at the same time The dual labour market and skill needs cannot access sufficient mortgage and equity to should be addressed buy, are left with few housing options. Proposed Self-employed and other flexible workers have legislation to allow municipalities to ban buy-to-let been particularly affected by the COVID-19 investments is counterproductive. crisis. These workers tend to earn less, save less, The Netherlands is set to fall short of its have less social protection, are less likely to national target to reduce greenhouse gas engage in training and to own a house. Self- emissions (Figure 3). A High Court ruling (the employed pay lower rates of income tax and social Urgenda ruling) mandated a 25% reduction of security, while permanent employees enjoy among greenhouse gas emissions compared to 1990 the highest employment protection in the OECD. levels by the end of 2020. This target was just met, Temporary contracts are used more in sectors OECD ECONOMIC SURVEYS: NETHERLANDS 2021 © OECD 2021 11 affected by the COVID-19 crisis, in lower skilled technologies weigh on the digitalisation process. A occupations and by young workers. lack of finance is a further barrier to growth, and R&D expenditure is low. Women’s labour participation is high, but nearly 60% of women work part-time. This is Figure 5. Employment in some hard-hit sectors roughly three times the rate for men (Figure 4). is vulnerable to automation This represents an inefficient use of human capital Hours worked (LHS) Risk of automation (RHS) and leads to large gender gaps in earnings, wealth % pts Index and pensions. A relatively short parental leave 75 75 50 50 period for partners and a relatively high out-of- 25 25 pocket price of centre-based childcare likely play a 0 0 role. -25 -25 -50 -50 Figure 4. Women spend less time in paid work -75 -75 than men Gap between women’s and men’s working hours retail trade retail & & storage Wholesale & Wholesale Information & Information Manufacturing Transportation communication food services food Administrative & Administrative % % services support 30 30 & Accommodation Note: Data on hours worked refer to the percentage change between 24 24 2019Q2 and 2020Q2. Source: Author's calculations based on Nedelkoska and Quintini 18 18 (2018) and Eurostat (2021), Short-term business statistics.