The surplus on the current account of the Dutch balance of payments went up by EUR 6.4 billion in 2018, reaching an all-time high of almost EUR 84 billion, or 11% of GDP. This means the Netherlands again amply exceeds the 6% threshold which the European Commission has set in the context of the macroeconomic imbalance procedure (MIP). In absolute terms, the Netherlands has the fourth largest current account surplus, after Germany, Japan and China.1
Dutch firms post higher returns abroad than their foreign counterparts do here
The increase was driven mainly by growth in the primary income balance (see Figure 1). As usual, the largest contribution to the current account surplus came from the most important other component, which is the trade surplus. This stood at EUR 81 billion, or 10% of GDP.
The fourth quarter in particular registered a steep rise in the primary income balance. Earnings of Dutch firms from interest, dividends and retained profits on their foreign assets exceeded those of foreign firms from Dutch assets by almost EUR 8 billion, which puts the primary income balance at 3.8% of GDP.
The largest contribution to the positive primary income balance was made by gains on subsidiaries (see Figure 2). Whereas Dutch firms registered EUR 44 billion in gains on their foreign subsidiaries, foreign firms made EUR 36 billion on their Dutch subsidiaries, resulting in a net balance of EUR 8 billion. This balance is traditionally positive – a relatively large number of multinational corporations are headquartered in the Netherlands, which is why a portion of their profits remains behind in our country.
Dividends on shares show unusual positive net balance
The primary income account shows a notable feature in income from securities. In a development not seen since the first quarter of 2015, dividends on equities showed a positive net balance, at EUR 1.3 billion. With the economy booming, firms across the globe pay out relatively large amounts in dividends, something from which Dutch investors holding foreign equities also benefited amply. Conversely, however, the dividends which foreign investors holding Dutch shares received were virtually unchanged in 2018. A large proportion of dividend outflows is accounted for by Shell, whose policy is aimed at keeping dividend distributions stable over time.
Several Dutch firms have decided to reward investors by means of share repurchases. While this is not reflected in the current account, it is recognised in the financial account of the balance of payments as disposals of Dutch securities by foreign investors.
Note 1: Based on data of the International Monetary Fund from 2017