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Netherlands' current account surplus revised upwards
The current account surplus of the Dutch balance of payments was higher in 2021 and 2022 than previously recorded. This is mainly due to higher adjusted profits of listed multinationals and larger exports than previously projected.
Published: 23 June 2023
The current account surplus has been revised upwards from previous projections by €43 billion for 2021 and €47 billion for 2022. This increases the three-year average of the surplus to gross domestic product (GDP) over 2020-2022 from 5.6% to 8.8%. The current account includes international trade in goods and services, and income transactions such as interest, dividends and pension payments.
There are three main causes for the revisions, wich are also reflected in the revised gross national income and gross domestic product figures, released by Statistics Netherlands (CBS), together with this longread.
First, the balance of primary income with foreign countries has been revised upwards by €33 billion for 2021 and by €29 billion for 2022. This revision is mainly caused by higher than initially estimated profits by listed multinationals. Second, the export surplus is higher than previously released (+€10 billion in 2021 and +€15 billion in 2022). The magnitude of both revisions is exceptional from a historical perspective. For the export surplus, it can be explained in part by the uncertainty about the impact of the COVID-19 pandemic in 2021 in previous projections, as not all data from businesses was available at the time. Third, non-listed companies' profits distributed abroad are €6 billion lower than previously projected, leaving more income in the Netherlands on balance.
Multinationals' profits have large impact on current account
The current account surplus in the Netherlands is strongly influenced by the large role multinational companies play in our economy. This is partly due to differences in the way profits for investors, on the one hand, and profits for foreign investors with holdings in excess of 10%, on the other, are treated statistically.
Only the distributed part (dividend) of the profits a company makes is considered as income of the investor, while the undistributed part (also referred to as retained earnings) is attributed as income to the company. In the case of Dutch listed multinationals, the globally retained profits therefore accrue in the Netherlands, even if the shareholders of these companies are mostly foreign. The opposite effect occurs when, conversely, foreign-based companies do not distribute profits in full to Dutch investors, such as Dutch pension funds.
However, for direct investments in companies involving an interest of more than 10%, retained earnings are attributed as income to the direct investors. This is because statistical guidelines assume that such “large” investors in a company have a significant degree of control over how profits are spent (e.g. reinvested or distributed), while smaller shareholders do not.
Impact of registered office transfers by multinationals on current account
Partly because of the above dynamics, relocations of multinationals’ registered offices can have a major impact on the current account balance. Several foreign companies have moved to the Netherlands over recent years. This increases the Netherlands' current account surplus as these companies' undistributed profits are allocated to the Netherlands. Conversely, relocations of, for example, Shell and Unilever to the United Kingdom have had a dampening effect on the surplus for the same reason.
An indicative additional analysis for the year 2022 shows that the Dutch current account surplus would have been lower if retained corporate profits had been allocated to shareholders and not to the companies themselves. In 2022, profits not distributed by Dutch companies and financial institutions to foreign investors amounted to almost 5% of GDP. Conversely, retained earnings not allocated to Dutch investors amounted to almost 3% of GDP. The net effect of this alternative treatment of retained earnings would therefore have resulted in a 2 percentage point reduction (around €19 billion) in the current account balance.
Why is the balance of payments revised?
The balance of payments and international investment position are prepared in cooperation between Statistics Netherlands (CBS) and DNB. DNB is responsible for data on the financial institutions sector, while CBS provides data on the following sectors: non-financial institutions, government, households, and non-profit institutions serving households. They jointly project the Netherlands' financial relationship with foreign countries, making CBS's national accounts and balance of payments and DNB's international investment position mutually consistent.
Balance of payments statistics, like CBS's National Accounts, have multiple release dates. As time progresses, the source material used becomes increasingly complete. Quarterly data are published within three months and are initially considered very preliminary. For many sectors, only limited reporting or other (e.g. administrative) source data is available, and the missing information is supplemented through projections. In June, preliminary data for the previous year is released based on enhanced and more complete information. A year later, all reports and source data have been received and processed, and data can be considered final, after which they can be revised periodically.
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