With the US economy still growing strongly and official US interest rates set to rise further, portfolio investors will have little incentive in the short term to reduce their holdings of dollar-denominated securities. Moreover, any recovery in the euro's external value could be curbed if portfolio investors take advantage of a rebound by cutting their positions. At the beginning of next year, however, we expect the euro to start recovering against the dollar, supported by the prospect of a slowdown in the US and a narrowing interest-rate differential between the US and the euro area. The adverse impact of higher wages and inflation on Dutch competitiveness will be more than offset by the growing strength of the country's export markets. Improved prospects in the world chemicals market will also allow Dutch firms to pass on the recent increases in the price of oil.
Chemical products have a significant weight in Dutch exports.
The progressive improvement of the trade surplus will be the decisive factor determining the current-account balance in the outlook period. The Economist Intelligence Unit Limited 2001. All rights reserved.