In the first quarter of 2014 the Netherlands balance of payments current account surplus came out at almost 14% of gross domestic product (EUR 20 billion), a slight decline compared to the first quarter of 2013. Net external assets – Dutch holdings abroad minus foreign holdings in the Netherlands – rose to the level of EUR 306 billion (with capital interests at book value).
As in the previous quarter, the current account (note 1) surplus is slightly lower than a year ago. This effectively ended a prolonged period of increasing surpluses (four-quarterly, see Figure). The shift is driven by a flattening development of the goods balance and net external income which has been below that of the previous year for several quarters now.
Chart 1: Current account balance (% GDP, moving 4-quarter totals)
The annual increase in the surplus since the beginning of 2010 can be explained through transactions with the EU-28. The surplus on those countries rose from EUR 90 billion in 2010 to EUR 111 billion in 2013. On the other hand, the surplus on countries outside the EU remains fairly stable, with an increase of the deficit on the United States and a decrease of the deficit on Japan.
In the flattening development of the goods surplus, the mild winter played an important role. The relatively high temperatures meant that contrary to preceding years, less natural gas was exported than the year before. On balance, gas exports amounted to EUR 4.5 billion, a fall of 30% compared with the first quarter of 2013. In addition, price developments determined the picture for the goods account. Across the board, import and export prices were lower than a year ago, 2.8% and 2.4%, respectively.
Income receipts on external direct investment in the first quarter rose to a total level of EUR 12 billion, predominantly at non-financial institutions. The high level of last year’s first quarter was not reached, however, so that on a four-quarterly basis the result was a decline. Foreign parents realised slightly higher profits on their direct investment in the Netherlands, both compared with the previous quarter and with a year earlier.
Cross-border portfolio investments
Dutch investors bought foreign securities for an amount of approximately EUR 11 billion, for the greater part consisting of shares (EUR 7 billion). Pension funds purchased foreign bonds for an amount exceeding EUR 8 billion. Net purchases on balance came out lower due to the phase out of U.S. debt paper by the Dutch government in the context of the auction of its IABF portfolio. Foreign investors on the other hand on balance sold part of their holdings of Dutch securities. The sales related entirely to Dutch bonds, both those of banks (EUR 7 billion) and those of non-financial corporations (EUR 3 billion). Purchases and sales of Dutch shares were in near equilibrium, while foreign holdings of Dutch money market paper increased.
Positive price developments, in part driven by the decline of capital market rates, ultimately meant that foreign holdings of Dutch securities increased by EUR 20 billion to EUR 1,273 billion, and that Dutch holdings of foreign securities were pushed up even higher, by a total increase of almost EUR 40 billion to EUR 1,262 billion). The decline in capital market rates is also the main reason for the turnaround in the net contribution of derivatives to the external assets of Dutch residents. After five quarters of decline, the contribution rose by EUR 9 billion to EUR 5 billion. In particular, the net position of pension funds in interest rate future contracts increased markedly as funds hedged against a drop in long-term rates.
The contribution of direct investment (at book value) to net external assets dropped by EUR 7 billion. At EUR 800 million, the increase in foreign investment in Dutch real estate was particularly striking. This is many times more than the changes seen in previous quarters. Still, the (estimated) size of real estate in the whole of foreign direct investment in the Netherlands is actually quite modest at approximately EUR 760 million.
Note 1: The figures for the latest quarter should be interpreted with some degree of caution. As of September 2014, DNB will publish the figures in accordance with the new IMF Balance of Payments Manual 6. The changeover to the new statistical manuals also initiated improvements in sources and compilation methods. The present tables are the last ones according to the existing manuals, but the figures for the latest quarter already show the effects of several new sources and compilation methods. The next publication in September will explain the various changes.