Dutch current account surplus fell sharply in 2020
The surplus on the current account of the Dutch balance of payments in 2020 came to EUR 62 billion, or 7.8% of gross domestic product (GDP). In spite of the 2 percentage point drop relative to 2019, the surplus was still above the 6% threshold set by the European Commission (see Figure 1). The decrease was primarily driven by lower net income flows to and from other countries related to direct investment. The trade balance for full 2020 was unchanged from 2019.
External income balance was significantly lower in 2020
The external income balance came to EUR -9 billion (-1.1% of GDP) in 2020, down EUR 12 billion on 2019 (see Figure 2, net primary income). The decline reflected lower income on direct investment. In particular, profits from foreign equity holdings declined sharply across all quarters of 2020, reaching a total of EUR -39 billion for full 2020. Profits realised by foreign firms on their participating interests in the Netherlands were also lower throughout the year, but their EUR 13 billion decrease was significantly more muted. Lower profit distributions by Dutch investment funds provided some counterbalance, especially in the second quarter.
Current transfers, commonly referred to as net secondary income, also contributed to the decline in the current account surplus, as their balance receded both in general government, due to lower tax proceeds on income and wealth, and in the private sector, due to a one-off current transfer in the first quarter.
Trade balance remained steady as underlying trade flows were lower
The coronavirus (COVID-19) crisis had a strong impact on trade flows. Goods and services flows ended 2020 sharply lower, with both imports and exports falling by around 6% (goods) and 10% (services). The year-on-year decline in goods flows was particularly strong in the second quarter, followed by cautious recovery. Services imports and exports were still higher than a year earlier in the first quarter, but then turned into significant year-on-year declines, which persisted until the fourth quarter. As expected, travel and cultural services, which are of significance to the Netherlands, recorded the largest percentage decreases on both sides of the trade balance.
Current account surplus declined further in the fourth quarter of 2020
In the final quarter of 2020, the surplus on the current account of the balance of payments was EUR 14 billion, or 6.7% of GDP. The EUR 9 billion drop relative to the fourth quarter of 2019 outstripped that seen in the previous three quarters, which had also registered lower surpluses. The trade surplus edged up as the decline in goods imports (-4%) exceeded that in exports (-2%). Lower profit distributions by foreign subsidiaries were the decisive factor in the low surplus.