Current account surplus dips below 6% standard
At 5.6%, the Dutch current account surplus as a percentage of gross domestic product (GDP), based on three-year averages, was below the European Commission's 6% standard in 2022 for the first time in more than a decade, as revealed by new DNB figures. The current account balance was €4.3 billion in the fourth quarter of 2022, resulting in a current account surplus of €41.0 billion for the whole of 2022.
The current account includes international trade in goods and services, as well as primary and secondary income transactions. The difference between the current account income and expenditure is known as the current account balance.
The Netherlands has had a positive current account balance, also known as a surplus, for decades. This means that income from abroad – from trade, wages or profits, for example – is higher than expenditure. There has been a lot of international attention on the Dutch current account surplus, as it has long been structurally above the 6% standard set by the European Commission as part of the Macroeconomic Imbalance Procedure (MIP). The MIP is based on three-year averages and it aims to identify potential macroeconomic imbalances in the euro area that could adversely affect the EU economy or the euro.
Primary income balance depresses current account
At €41.0 billion, the current account balance was sharply lower than in 2021 (€62.2 billion) and on par with the 2020 level (€41.0 billion). Although the balance is the same as in 2020, the increase in the size of the economy has reduced the current account surplus as a percentage of GDP.
The €21.2 billion decline in the current account balance compared to 2021 is largely due to a €19.2 billion drop in the primary income balance. Primary income transactions include wages, interest and dividends. This decrease was mainly caused by sharply higher profit distributions to multinationals with a foreign parent and rising dividend payouts by Dutch listed companies to their foreign shareholders. Recent relocations of headquarters of multinationals to foreign locations are another contributing factor.
Inflation and post-pandemic recovery boost value of foreign trade
The current account surplus is mainly due to the structural surplus in exports. This is the difference between income from, and expenditure on, international trade in goods and services. The export surplus for the whole of 2022 was €88.7 billion, in line with the export surplus in 2021 (€87.9 billion).
Although the surplus rose by only 1%, this conceals the significant underlying effect of the recovery of the economy following the pandemic and the exceptionally high inflation in 2022, which are clearly reflected in the value of trade in 2022. Compared to 2021, the value of exports increased by 23% to €872 billion and the value of imports by 26% to €783 billion.
Net external assets fall, sharp rise in other financial transactions
Net external assets fell from €797 billion at the end of 2021 to €707 billion one year later. Net external assets represent the balance of Dutch claims abroad and foreign claims on the Netherlands, and can be broken down by the share of direct investment, securities transactions, financial derivatives, other financial transactions and official reserves.
The €228 billion increase in net other financial transactions is noteworthy. This increase is partly caused by the change in the Netherlands’ TARGET2 balance. TARGET2 is the system used by commercial banks and central banks in the EU to transfer money to each other. The difference between incoming cash flows and outgoing cash flows between two countries since the introduction of TARGET2 constitutes the TARGET2 balance. In short, a positive TARGET2 balance (a claim) means that banks in a specific country have received more money from abroad than they have transferred abroad. A negative TARGET2 balance (a liability) means that banks in a specific country have transferred more abroad than they have received.
There was a brief TARGET2 liability at the end of 2021, but in general the Netherlands has a positive TARGET2 balance, i.e. a claim. In 2022, the balance increased from €-22 billion to over €+81 billion, resulting in an increase in net other financial transactions.
A second reason for the rise in net other financial transactions is related to the fall in net securities transactions. The €80 billion decline in net securities transactions was largely driven by the rise in interest rates and sharp falls in stock market prices. In addition, the sales of investments by pension funds to meet margin obligations also played a role. The sale of investments reduces net securities transactions, while deposits in margin accounts simultaneously increases net other financial transactions.
Finally, the overall decline in net external assets is largely due to a €131 billion decrease in net direct investment. These are long-term, cross-border investments involving a participating interest of more than 10%. The underlying value of the Netherlands' investments abroad increased by €86 billion and foreign investment in the Netherlands by €218 billion. A significant part of the change in 2022 is related to exchange rate movements and revaluations.
Further information
- Table 12.1: Balance of payments from 2015 onwards
- Table 12.12: Net external assets from 2015
- Dashboard: External assets