The current account surplus of the Dutch balance of payments fell by 12% on an annual basis to EUR 14 billion in the second quarter of 2019, corresponding to 7% of Dutch gross domestic product (GDP), see Figure 1. This is more than the 6% threshold set by the European Commission in the context of the macroeconomic imbalance procedure (Macroeconomic Imbalance Procedure, MIP), but well below the annual average, as usual in the second quarter, the "dividend season”.
Substantial dividend payouts to foreign investors push down income balance
A reduction of EUR 4.2 billion in the primary income balance was the main cause of the lower surplus. In addition, the reduced goods balance played a role, albeit that the stronger services export caused the total trade balance (i.e. goods and services combined) to grow by EUR 1.4 billion on an annual basis.
A negative income balance is common in the second quarter, it being the dividend season. Dividends paid out by Dutch companies to foreign shareholders rose 10% to EUR 14.2 billion. Conversely, dividends received by Dutch investors on their foreign shares only went up 1% to EUR 5.1 billion.
Dutch companies structurally pay out more dividend on shares to foreign investors than vice versa. The reason is that Dutch listed companies have many foreign shareholders.
The lower primary income balance was also driven by declining profits at foreign subsidiaries of Dutch non-financial corporations, including Shell. In total, this category saw profits of non-resident participating interests decline by EUR 3 billion to EUR 7.3 billion.
The Netherlands has a structurally high savings surplus. In particular Dutch multinational corporations typically receive more income from abroad than they pay out to foreign shareholders.
UK inward and outward direct investment fall in 2019
UK-Netherlands investment data are in the spotlight as a result of the possible Brexit. The financial account of the balance of payments shows that direct investment (including so-termed special financial institutions) from the Netherlands in the UK went down for the second consecutive quarter, see Figure 2. In the second quarter, total direct investment fell EUR 8 billion, following a decline of EUR 15 billion in the first quarter. If the restructuring of a foreign multinational corporation (with little impact on the real Dutch economy) in the fourth quarter of 2018 is excluded, Dutch investment in the United Kingdom has even declined since the first quarter of 2018.
Investment from the UK in the Netherlands also decreased in the first two quarters of 2019, by slightly more than EUR 3 billion. 2018 still showed a strong increase of EUR 80 billion. However, more than half of this amount related to the above-mentioned restructuring. Without this contribution, investment from the UK has shown a downward trend since 2016.