SNR: Foreign profits drive up current account surplus

Statistical news
Datum 22 december 2017

In the third quarter of 2017, the surplus on the current account of the Dutch balance of payments was EUR 18 billion, or 10% of gross domestic product (GDP), 2 percentage points up on the third quarter of 2016.

Values of goods and service imports and exports were up 8% from a year ago. Dutch net external assets – the balance of Dutch claims abroad and foreign claims on the Netherlands – did not reflect the surplus, as it decreased by 8% to EUR 459 billion, or 64% of GDP. This decline was mainly due to the favourable Dutch stock market developments. The higher Dutch stock exchange prices led to a higher value of liabilities to foreign investors and consequently to lower net external assets.

Current account balance increases

The current account balance grew by EUR 6 billion compared with the third quarter of 2016. This increase can be ascribed particularly to developments in the primary income balance. Foreign subsidiaries of Dutch companies were more profitable than a year ago, resulting in an increase in the income from direct investment, especially thanks to the recently published profitable third quarter of Shell.The income of Dutch enterprises distributable to foreign-based parent companies, however, seems to have gone down, and dividend payments to foreign investors declined.

Growth in trade of goods and services between the Netherlands and the foreign sector continued. In the third quarter of 2017, the Netherlands realised a trade surplus of EUR 20 billion. Values of goods imports and exports were up 9% from a year ago. The increase, mainly driven by volume growth, amounted to approximately 6%, for imports and exports alike. The values of service exports increased by 8%, service imports increased by 6%.

Financial account

At EUR 58 billion, foreign investment in the Dutch economy was relatively large in the third quarter of 2017. Special financial institutions contributed EUR 37 billion of this amount. These are Dutch-based financial intermediaries that often immediately reinvest incoming investment abroad. At EUR 44 billion, the total value of Dutch direct investment positions abroad was also high. Of this amount, EUR 33 billion was attributable to the special financial institutions. There were no large mergers or takeovers at non-financial corporations in the quarter. The greater part of both outward and inward direct investment related to intra-group loans between parent companies and subsidiaries. On balance, direct investment led to an influx of EUR 14 billion into the Netherlands.

Securities transactions caused a net outflow of EUR 17 billion in the third quarter of 2017. As in the second quarter, Dutch investors purchased large quantities of foreign securities (EUR 16 billion). In particular Dutch investment funds and pension funds were active in the market. They primarily bought US equities and US capital market paper, a substantial part of which consisted of sovereign debt. Conversely, foreign investors on balance only sold EUR 1 billion worth of Dutch securities. Substantial purchases of Dutch money market paper issued by banks compensated large sales of capital market paper and Dutch listed shares. Foreign holdings of Dutch sovereign bonds, which have slid steadily since early 2015, declined further. The sizeable one-off sale of Dutch listed shares related to the US takeover of a Dutch industrial tech holding company.

At EUR 18 billion, the derivatives trade showed a relatively large foreign inflow in the third quarter of 2017. Many Dutch pension funds and other financial institutions hedged against exchange rate increases of the euro. The relatively high appreciation of the euro therefore meant significant profits on foreign exchange derivatives contracts. At maturity, the contracts will lead to a foreign influx. The positive revaluations of foreign exchange derivatives contracts were offset by exchange rate losses on foreign investment. At the same time, global commodity prices rose and institutional investors cashed in their profits on commodity futures.