COMMISSION STAFF WORKING DOCUMENT In-Depth Review for The Netherlands in accordance with Article 5 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances Accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy
Date: 2021-06-02
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, European Semester, Netherlands, coronavirus disease, economic recovery, epidemic, fiscal policy, investment policy, macroeconomics, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 2.6.2021  SWD(2021) 409 final  COMMISSION STAFF WORKING DOCUMENT In-Depth Review for The Netherlands                    in accordance with Article 5 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances  Accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK  Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy          {COM(2021) 500 final} - {SWD(2021) 401 final} - {SWD(2021) 402 final} - {SWD(2021) 403 final} - {SWD(2021) 404 final} - {SWD(2021) 405 final} - {SWD(2021) 406 final} - {SWD(2021) 407 final} - {SWD(2021) 408 final} - {SWD(2021) 410 final} - {SWD(2021) 411 final} - {SWD(2021) 412 final}  
 
 
CONTENTS 

Executive summary 

1.  Assessment of Macroeconomic Imbalances 

2.  Thematic Issue: External Sector 

3.  Thematic Issue: Private Indebtedness and Housing 

LIST OF TABLES 

Table 1.1: 

Outward spillover heat map for The Netherlands 

Table 1.2: 

Assessment of Macroeconomic Imbalances Matrix - The Netherlands 

Table 1.3: 

Selected economic and financial indicators, The Netherlands 

Table 2.1: 

Selected external sector indicators, The Netherlands 

Table 3.1: 

Household debt indicators, The Netherlands 

Table 3.2: 

Selected housing indicators, The Netherlands 

LIST OF GRAPHS 

Graph 2.1: 

Thematic Graphs: External sector 

Graph 3.1: 

Thematic Graphs: Private indebtedness and housing 

Graph 3.2: 

Thematic Graphs: Private indebtedness and housing (cont.) 

LIST OF BOXES 

Box 1.1: 

Spillovers The Netherlands 

1 

2 

10 

14 

3 

7 

9 

12 

17 

18 

13 

19 

20 

5 

 
 
 
 
 
 
 
EXECUTIVE SUMMARY 

The 2021 Alert Mechanism Report concluded that an in-depth review should be undertaken for the 
Netherlands to examine further the persistence of imbalances or their unwinding. In February 2020, 
under  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic  Imbalances  Procedure,  the 
Commission identified “macroeconomic imbalances” in the Netherlands. These imbalances related to the 
large current account surplus  and high private-sector debt. The analysis shows that these vulnerabilities 
remain.  It  should  be  noted  that  the  context  of  the  assessment  of  vulnerabilities  in  this  year’s  in-depth 
review (IDR) for the Netherlands is markedly different from last year. Also, the evolution of the COVID-
19  pandemic,  the  strength  of  the  recovery,  and  possible  structural  implications  of  the  crisis  are  all  still 
surrounded  by  high  uncertainty,  requiring  caution  in  the  assessment.  In  general,  policy  action  over  the 
past  year  focused  on  cushioning  the  impact  of  the  COVID-19  shock  and  facilitating  the  recovery.  This 
should  support  adjustment  in  the  medium-term.  Looking  forward,  the  Recovery  and  Resilience  Plan 
provides an opportunity to address imbalances, investment and reforms needs.  

Main observations and findings of this IDR analysis are: 

  This IDR is informed by the 2021 spring forecast, which expects a recovery in economic activity 
in the Netherlands with the easing of the COVID-19 crisis. After the steep drop of 3.7% in 2020, 
real  GDP  is  projected  to  increase  by  2.3%  this  year  and  3.6%  next  year,  allowing  the  economy  to 
recover its pre-pandemic level by the end of this year.  

  The  current  account  surplus  declined  to  7.8%  of  GDP  in  2020  but  is  expected  to  remain 
elevated. The COVID-19 shock caused considerable shifts in sectoral positions. The savings surplus 
in  the  household  and  corporate  sectors  widened,  but  that  was  more  than  offset  by  the  government 
sector  which  moved  sharply  into  net  borrowing  territory  due  to  the  implementation  of  crisis-related 
fiscal  support  measures.  Despite  its  recent  decline,  the  overall  savings  surplus  remains  high  both 
relative  to  fundamentals  and  by  international  comparison.  Despite  an  ongoing  pension  reform  and 
recent  tax  changes  addressing  incentives  to  retain  earnings  within  SMEs,  the  structural  drivers 
underpinning high household and corporate savings remain in place. The balance-of-payments picture 
also points to the current account surplus remaining at an elevated level going forward, as the strong 
recovery in global goods trade supports net exports.  

  The private debt-to-GDP ratio increased somewhat in 2020, to 235%, and is expected to remain 
high.  While  both  headline  corporate  and  household  debt  levels  are  high,  a  large  share  of  corporate 
debt  represents  intra-group  debt  of  multinationals.  Household  debt  is  primarily  driven  by  mortgage 
debt, and is expected to continue growing at a somewhat accelerated pace in nominal terms as a result 
of recent sharp house price rises. The maximum applicable rate of mortgage interest deductibility is 
being  reduced  by  3  percentage  points  per  year  until  2023,  but  a  substantial  subsidy  for  mortgage 
borrowing  remains.  Measures  to  discourage  buy-to-let  investment  may  further  reinforce  existing 
policy distortions favouring owner-occupancy over rental housing and thus risk undermining efforts to 
boost the private rental sector.  

1 

 
1.  ASSESSMENT OF MACROECONOMIC IMBALANCES 

Introduction 

In  February  2020,  over  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic 
the 
Imbalances  Procedure, 
Netherlands. These imbalances related to the large current account surplus and high private-sector debt 
linked to distortions  in the  housing  market. The 2021 Alert Mechanism  Report published in  November 
2020 concluded that a new in-depth review (IDR) should be undertaken for the Netherlands with a view 
to assessing the persistence or unwinding of imbalances.  

identified  “macroeconomic 

the  Commission 

imbalances” 

in 

The  context  of  the  assessment  of  vulnerabilities  this  year  is  markedly  different  from  last  year's 
IDRs, which took place before the COVID-19 pandemic. The evolution of the pandemic, the strength 
of the recovery, and possible structural implications of the crisis are still surrounded by high uncertainty 
requiring caution in the assessment. Policy action over the past year focused on cushioning the impact of 
the  COVID-19  shock  and  on  facilitating  the  recovery.  Follow-up  to  country-specific  recommendations 
from  2019  and  2020,  including  those  that  are  MIP-relevant,  is  taking  place  in  the  context  of  the 
assessment of the Recovery and Resilience Plans (RRPs).  The analysis of policies in the present report 
was finalised before the formal submission of RRPs and does not draw on information included in RRPs. 
It is therefore without prejudice to the Commission’s assessment of RRPs, which is ongoing at the time of 
publication of this report. 

The assessment follows a similar structure  as the IDRs that were included in Country Reports in 
recent  annual  cycles.  This  chapter  presents  the  main  findings  for  the  assessment  of  imbalances,  also 
summarised in the MIP assessment matrix. The assessment is backed by selected thematic chapters that 
look  more  at  length  at  the  external  position  and  private  debt  developments.  Spillovers  and  systemic 
cross-border implications of imbalances are also taken into account. In addition, assessments of structural 
issues made in previous IDRs and in the context of fiscal assessments are also considered. 

Macroeconomic context 

The Dutch economy is forecast to rebound swiftly to its pre-pandemic level on the back of a robust 
recovery  in  consumer  demand  and  more  favourable  external  factors.  The  economy  is  expected  to 
grow  by  2.3%  and  3.6%,  in  2021  and  2022,  respectively,  the  latter  also  driven  by  strong  carry-over 
effects. By the end of the forecast horizon, Dutch real GDP is forecast to be 2.2% above its level at the 
end of 2019. The output gap is set to improve significantly but still remain slightly negative, at  -0.2% in 
2022. Following a decline to 7.8% of GDP in 2020, the current account surplus is forecast to gradually 
increase to 8.7% of GDP in 2022. The gross saving rate of households is forecast to remain above its long 
term average of around 16%, albeit declining gradually to around 18% in 2022. The unemployment rate is 
forecast to remain relatively low, at 4.3% and 4.4% in 2021 and 2022, respectively, compared to 3.4% in 
2019. HICP inflation is set to increase from 1.1% in 2020 to around 1½% in 2021 and 2022, reflecting a 
recovery in energy prices and the services sector. 

The economic recovery is expected to be broad-based, gaining steam in the second half of this year. 
The implementation of the vaccination strategy and the following easing of confinement measures are set 
to lead to a rebound in private consumption, also to the benefit of the recovery in the contact-intensive 
services sector. The rebound in 2021 is also projected to be supported by robust investment dynamics on 
the  back  of  a  strong  manufacturing  sector,  where  previously  postponed  investment  plans  are  being 
revived. Net exports are also expected to contribute substantially to the near-term recovery. In 2022, the 
pace of growth is expected to slow down in view of the expected withdrawal of the emergency support 
measures,  a  limited  increase  in  unemployment  and  subdued  wage  growth.  Risks  to  the  outlook  are 
broadly  balanced.  On  the  downside,  possible  slower  pace  of  vaccination  and  new  variants  of  the  virus 
could  delay  the  easing  of  containment  measures.  On  the  upside,  stronger  than  projected  global  growth, 
particularly in the US, could have a more positive impact on the recovery. 

2 

 
1. Assessment of Macroeconomic Imbalances 

Imbalances and their gravity 

Despite its recent decline, the current account surplus remains high by international standards and 
relative  to  fundamentals.  Following  a  peak  of  10.8%  in  2018,  the  current  account  surplus  narrowed 
slightly to 9.9% in 2019. However, it remained among the highest in the euro area as a share of GDP and 
is well above fundamentally justified levels. A persistently high trade surplus in goods is the main driver 
from a trade perspective.  

Prior  to  the  COVID-19  shock,  all  domestic  sectors  were  in  surplus,  with  the  corporate  sector 
making  the  largest  contribution  to  net  lending.  Both  financial  corporations  and  non-financial 
corporations  recorded  a  structural  surplus,  with  the  latter  being  the  main  driver.  Net  lending  by  non-
financial  corporations  amounted  to  4.7%  of  GDP  in  2019.  Compared  to  the  rest  of  the  euro  area, 
profitability and net property income were relatively high for Dutch firms, whereas domestic investments 
were lower. This was linked in part to the large presence of multinationals in the Netherlands, but small 
and  medium-sized  enterprises  were  also  significant  contributors  to  net  lending.  Households  have  been 
recording surpluses since the global financial crisis, amounting to 2.3% of GDP in 2019. The dip in the 
housing market following the crisis initially led to a decrease in residential investment, while at the same 
time boosting personal savings via deleveraging pressures linked to high household debt. Pension funds 
were  also  an  important  driver  of  household  net  lending  due  to  relatively  high  second-pillar  pension 
contributions which are largely invested abroad. Before the COVID-19 pandemic, the government sector 
also recorded a  headline  surplus (of 1.7% of GDP in 2019), driven by past consolidation  measures and 
increasing tax revenues.  

Private debt continued to decline in 2019, but remained high. It reached 234% of GDP in 2019, down 
from 244% the year before. Non-financial corporate debt accounted for 134% of GDP. However, around 
60%  of  this  debt  is  owed  by  multinationals  and  largely  consists  of  intra-group  loans,  implying  limited 
macro-economic risks. The household debt ratio stood at 100% of GDP in 2019  – among the highest in 
euro area and well above relevant benchmarks. Although household debt continued to increase in nominal 
terms, growth remained relatively muted at around 1-1.5% annually since the 2008-2009 financial crisis. 
Household debt largely consists of mortgage debt, fuelled by mortgage interest tax deductibility coupled 
with distortions in the housing market, including an underdeveloped rental market and an overall housing 
shortage  due  to  construction  persistently  falling  short  of  demographic  requirements.  Real  house  prices 
continued  to  rise  in  2019  (by  4.8%  in  real  terms)  to  levels  beyond  what  fundamentals  such  as  income 
would suggest (overall valuation gap is +10% but fundamental-based gap is +20%). 

Cross-border spillovers to other EU countries are relatively  moderate given the  size of the Dutch 
economy. Table 1.1 shows that exports to the Netherlands constitute a relatively large share of GDP for 
Belgium (14%). From the Dutch perspective, Germany is the largest export destination. On the financial 
side,  Belgium,  Cyprus,  Ireland,  Luxembourg  and  Malta  have  a  relatively  high  exposure  to  the 
Netherlands.  Box  1.1  shows  an  analysis  of  Dutch  cross-border  demand  on  other  Member  States'  value 
added in 2020, confirming significant adverse impact on Belgium. 

Table 1.1: 

Outward spillover heat map for The Netherlands 

(1) cross-border figures for Netherlands, expressed as a % of the GDP of the partner country. The darkest shade of red 
corresponds to percentile 95 and the darkest shade of green to percentile 5. The percentiles were calculated for each 
variable based on the full available sample of bilateral exposures among EU countries. The blank spaces represent missing 
data. Data refer to: Imports - 2018, Imports (in value added) - 2015, Financial liabilities - 2018, Financial assets - 2018, Liabilities 
(to banks) - 2020-Q3, Bank Claims - 2020-Q3. 
Source: IMF, OECD, TiVa, BIS and Commission services 

Evolution, prospects and policy response 

The current account surplus declined further to 7.8% of GDP in 2020 but is expected to increase 
somewhat  again  in  the  coming  years.  The  COVID-19  shock  caused  considerable  shifts  in  sectoral 

3 

ATBEBGHRCYCZDEDKEEELESFIFRHUIEITLTLULVMTNLPLPTROSESISKImports1.514.41.30.30.13.43.32.22.211.42.31.43.440.93.16.21.40.62.81.80.82.322.5Imports (in value added)0.632.650.610.490.370.770.80.650.620.260.450.520.470.811.350.270.692.510.60.310.750.440.540.810.510.63Financial liabilities15.473.241153.68.922.69.52.81.29.717.121.82.4145.68.23.71500.12.774.31.8151.718.73.73Financial assets23.250.510.48.09130.316.521.112.27.236.3219.117.616.117.21037.825.158092.9545.49.8624.610.116.32.7214.8Liabilities (to banks)1.95.62.20.21.61.94.30.51.412.1Bank claims2.716.2375.51.310.853.913.84.199.6211.4149.4174.647.920.854.351.03EU partner 
   
 
1. Assessment of Macroeconomic Imbalances 

positions.  The  savings  surplus  in  the  private  sector  widened  as  household  savings  were  boosted  by 
curtailed  consumption  combined  with  income  support  measures,  and  the  corporate  sector’s  savings 
surplus also slightly increased as firms cut back both earnings distributions and investment. However, this 
was more than offset by the government sector which sharply moved into net borrowing territory due to 
fiscal support measures. Despite its recent decline, the overall savings surplus remains high both relative 
to fundamentals and by international comparison. The structural drivers underpinning high household and 
corporate  savings  remain  in  place,  notwithstanding  the  ongoing  reform  of  the  second-pillar  pension 
system  and  recent  tax  reforms  addressing  incentives  to  retain  earnings  within  SMEs,  The  balance-of-
payments picture also points  to a somewhat  wider current  account  surplus  going  forward, as the strong 
recovery in global goods trade supports net exports.  

The  private  debt-to-GDP  ratio  increased  somewhat  in  2020,  to  235%,  and  is  expected  to  remain 
high. In nominal terms, household debt growth appears likely to pick up somewhat as a result of sharp 
house price rises in recent years, and in particular in 2020, when price growth accelerated again (to 7.3% 
in real terms as of Q3). However, the household debt-to-GDP ratio is likely to remain roughly stable over 
the next few years due to denominator effects, as economic activity gradually recovers from the COVID-
19 crisis. In terms of policy measures, the maximum applicable rate of mortgage interest deductibility is 
being reduced by 3 percentage points per year. However, the eventual rate of 37%, to be reached in 2023 
still implies that a substantial subsidy for mortgage borrowing remains. Measures to discourage buy-to-let 
investment  may  further  reinforce  existing  policy  distortions  favouring  owner-occupancy  over  rental 
housing and thus risk  undermining efforts to boost the private  rental sector. This could further increase 
upwards price pressure for owner-occupied homes. 

Overall assessment 

The  Netherlands  has  recorded  persistently  large  current  account  surpluses  and  high  private  debt 
levels.  The  headline  current  account  surplus  is  largely  driven  by  non-financial  corporations,  with 
relatively high savings and low domestic investment.  Both large corporations, including  multinationals, 
and  small  and  medium-sized  enterprises  have  substantial  surpluses.  Households  also  make  a  sizable 
contribution  (particularly  when  correcting  for  statistical  distortions  linked  to  the  treatment  of  retained 
earnings), among other things due to high mandatory pension contributions. Household debt as a share of 
GDP  is  around  50  percentage  points  higher  than  the  euro  area  average  and  well  above  the  relevant 
benchmarks  (see  subsection  4.2.3),  as  tax  incentives  encourage  households  to  take  on  mortgage  debt. 
While  household  debt  is  coupled  with  substantial  housing  and  pension  assets,  these  assets  are  often 
illiquid, leaving households vulnerable to shocks. 

The  external  surplus  and  private  debt  level  are  expected  to  remain  elevated.  The  current  account 
surplus  is  expected  to  remain  well  above  the  threshold,  as  the  strong  recovery  in  global  goods  trade 
supports net exports and the structural factors underpinning high private-sector savings surpluses remain 
in place.  Household debt is expected to continue growing in nominal terms, linked to sharp house price 
rises.  Despite  recent  policy  steps,  strong  incentives  to  take  on  mortgage  debt  remain,  also  against  the 
background of an underdeveloped private rental market.  

4 

1. Assessment of Macroeconomic Imbalances 

Box 1.1: Spillovers The Netherlands 

The pandemic recessions in EU Member States also reflected faltering cross-border demand 
from trade partners. While Dutch aggregate demand only played a limited role in the overall EU 
cross  border  demand  spillovers  during  2020,  it  had  significant  impact  on  some  countries.  In  the 
recovery, cross-border spillovers may undo their negative impact of 2020, yet the uncertain timing 
and extent of the recovery  make  a forward-looking assessment difficult.  As a  first step, this box 
thus aims to take stock of the heterogeneous spillovers of Dutch demand to other Member States’ 
value  added  in  2020.  It  quantifies  cross-border  effects  applying  latest  production  data  to  input-
output  estimates. (1)  This  allows  for  synthesizing  supply  chain  effects,  e.g.  detailing  how  Dutch 
consumption  from  domestic  providers  affected  those  providers’  foreign  suppliers,  and  their 
suppliers in turn. While these results allow for country-specific sectorial detail, it has to be noted 
that  they  reflect  partial  equilibrium  effects  in  the  goods  and  services  market  only  –  they  do  not 
include any second-round effects on foreign wage income, interest rates, prices etc., which may be 
stronger.  

Graph 1a shows the overall cross-border impact of the heterogeneous final demand changes 
during  2020,  and  highlights  the  Dutch  contribution  therein.  Overall,  1.2  pp  of  the  2020  EU 
output decline can be attributed to cross-border demand effects, with Dutch demand accounting for 
less than 0.1 p.p. thereof. Yet small open service-intensive economies  were hit stronger than the 
average.  The  importance  of  Dutch  demand  varies  significantly  across  partners,  with  highest 
relevance for neighbouring Belgium. Namely, around 0.3 p.p. of the 2 p.p. VA impact in Belgium 
due  to  intra-EU  demand  changes  is  driven  by  a  reduction  of  Dutch  demand.  Graph  1a  does  not 
necessarily mean that Dutch demand is not important for other countries. It could indicate that they 
mainly  sells  to  the  Netherlands  goods  and  services  for  which  demand  did  not  decrease  much 
during the COVID-19 crisis. 

Graph 2b highlights the heterogeneous effects of the pandemic by zooming in on the Dutch 
contribution by sector  (the dark-blue bar in Graph 1a). (2) Unsurprisingly, the decline in Dutch 
tourists accounted for the bulk of Dutch demand spillovers to Croatia, Portugal, Spain, Greece and 
Belgium.  Furthermore,  changes  in  demand  for  non-tourist  services  resulted  in  negative  VA 
spillovers to Belgium, Luxembourg and Hungary, while having a positive impact on Romania and 
Poland.  Changes  in  the  final  demand  for  industry  products  had  an  impact  on  Sweden,  Germany 
and  some  Central  European  economies.  The  indirect  spillovers,  which  captures  supply  chain 
interlinkages,  are  also  important  for  countries  like  Belgium  or  Luxembourg. (3)  Such  indirect 
cross-border spillovers is on a par with Dutch direct demand for services.  

(1)  The  estimates  derive  from  a  two-step  analysis:  1)  Compiling  2020  output  declines  at  the  sector-level  across  the 
globe. For  the  EU  Member  States,  detailed  information  for  2020  is  available  in  Eurostat.  For  non-EU  countries, 
sectoral  output  changes  in  2020  are  approximated  by  IMF  WEO  GDP  changes,  thus  implicitly  abstracting  from 
sectoral heterogeneity; 2) Using output changes in all country-sector pairs to trace back changes in final demand, based 
on global supply chain interlinkages as captured by the OECD ICIO tables. The resulting set of final demand changes 
can then be used to simulate the impact of the COVID-19 crisis on each country-sector's value added. Two important 
assumptions are made to allow for such a translation of output changes into demand changes. First, the technological 
coefficient matrix, which captures the required amount of supplies from any sector to produce a given sector's output, 

5 

-3-2.5-2-1.5-1-0.50BELLUXSWEHUNPRTHRVAUTCZEESPDEUSVKESTIRLMLTBGRDNKSVNFRACYPLTULVAFINGRCITAPOLROUEUEAGraph 1a: VA impact (%) of cross-border demand change 2019-2020NLDRest EU-0.3-0.25-0.2-0.15-0.1-0.0500.05BELLUXSWEHUNPRTHRVAUTCZEESPDEUSVKESTIRLMLTBGRDNKSVNFRACYPLTULVAGRCFINITAPOLROUEUEAGraph 1b: VA impact (%) of change in DEU demand 2019-2020 by categoryIndustryServicesTourismIndirect 
 
   
 
 
1. Assessment of Macroeconomic Imbalances 

is assumed to have remained fixed since the latest ICIO data (2016). Second, the country allocation final demand for a 
specific sector is assumed to have remained proportional to 2016.  

(2)  Distinguishing by the source of the demand allows to quantify the impact of demand changes in a certain  country on 
VA  production  in  all  its  trading  partners,  by  type  of  good  or  service.  Given  the  particular  nature  of  the  COVID-19 
crisis, with a strong impact on hospitality sectors, the analysis distinguishes between tourism (NACE sector I), all other 
services (G-N excl. I) and industry (A-F). 

(3)  For example, a drop in Dutch demand for German cars reduces Slovak production of engines, with a knock-on effect 

on Czech suppliers of engine parts. 

6 

 
 
 
 
Table 1.2: 

Assessment of Macroeconomic Imbalances Matrix - The Netherlands 

1. Assessment of Macroeconomic Imbalances 

Table (continued) 

(Continued on the next page) 

7 

 1   Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) Current account balance  The current account surplus remains one of the highest in the euro area and well above fundamentals-warranted levels (4% of GDP, according to Commission current account ‘norm’ estimates). The current account was 9.9% of GDP in 2019. The Netherlands has been running a current account surplus over the last three decades. This implies a persistent gap between savings and investment, with possible adverse consequences for the allocation of resources and therefore growth and welfare, and has relevance for the euro area as a whole. A breakdown by institutional sector points to non-financial corporations as the largest contributor historically, with a surplus of about 4.7% of GDP in 2019. The large presence of multinationals is a significant contributor to corporate savings, but small and medium-sized enterprises also have a significant surplus, which in part appears linked to fiscal incentives to retain earnings. The household balance turned positive during the global financial crisis and accounts for much of the surplus widening since then. It reached 2.3% of GDP in 2019 and is boosted by relatively large mandatory pension savings.  The government sector also had a net savings surplus in the three years before 2020. Overall, the current account surplus has declined further in 2020 (to 7.8% of GDP, based on the latest available data). Despite this decline, the overall savings surplus remains high both relative to fundamentals and by international comparison.  In terms of sectoral contributions, in 2020, the household surplus has been boosted by curtailed consumption and precautionary savings following the COVID-19 crisis. The corporate surplus has also increased as profitability has so far held up well, while companies have cut back on shareholder pay-outs to preserve liquidity and investments have been reduced due to increased uncertainty. However, more than offsetting this, the government balance fell sharply into deficit due to fiscal support measures.  The current account surplus is expected to increase somewhat to 8.5% of GDP in 2021 and to 9% of GDP in 2022, as the strong recovery in global goods trade supports net exports.  The government has maintained a highly expansionary fiscal stance since the COVID-19 crisis to help support domestic demand (general government balance of -4.3% of GDP in 2020, vs +1.7% in 2019), more than offsetting the increase in the private-sector savings surplus. In June 2019, the social partners and government reached an agreement on principles for a significant reform of the pension system. Following continued negotiations on implementation details, the agreement is currently going through the legislative process, which is expected to be finalised by January 2023. The new framework will be gradually phased in from 2023, with full implementation anticipated by 2027 at the latest. In the meantime, pension contributions have been raised; at the margin, this implies a further increase of the household savings surplus in the near-term. Recent tax reforms for SMEs could reduce incentives to retain earnings, although in practice they may shift part of smaller companies’ savings surplus to the household sector rather than leading to an overall reduction in the current account surplus.  Private debt   The private debt level in the Netherlands remains very high, standing at 234% of GDP in 2019. In particular, household debt, at about 100% of GDP in 2019, exceeds the fundamental benchmark by around 30 percentage points of GDP and the euro area average by some 50 percentage points.  It mostly consists of mortgage debt, Private debt rose slightly to 235% of GDP in 2020, after having declined somewhat in earlier years. Household debt has continued growing over the course of 2020 at around 1.5% in nominal terms, broadly in line with its prior trend. The COVID-19 crisis has had little impact on mortgage borrowing, as house prices continued to rise and housing market activity remained The accelerated reduction in mortgage interest deductibility is being implemented, cutting the maximum applicable rate to 37% by 2023. Nonetheless, a substantial subsidy on debt-financed homeownership remains.  Initiatives are being undertaken to boost new rental housing supply, but with  
   
 
 
 
1. Assessment of Macroeconomic Imbalances 

Source: European Commission Services 

8 

 2  which is driven by tax incentives for (debt-financed) owner-occupied house purchases and an underdeveloped rental market. While households have a high positive net asset position due to housing and pension wealth, they remain vulnerable to financial shocks since those assets are often illiquid and subject to market risk.  House prices have been growing notably over recent years and there are signs of overvaluation risks, notably with an overall overvaluation gap of +10% as estimated by the Commission.   Non-financial corporate (NFC) debt stood at 134% of GDP in 2019 exceeding the prudential threshold (94% of GDP) and fundamental benchmark (112% of GDP). The high level of NFC debt is largely driven by intra-group debt of multinationals.   strong. House prices grew at higher rates in 2020, in fact even accelerating over the course of the year.  Although the outlook is uncertain, household debt is expected to continue growing broadly in line with its recent trajectory, driven by (possibly more moderate) house price rises going forward.  Corporate debt remained broadly unchanged in nominal terms in 2020, reflecting the offsetting effects of increased demand for credit from firms with impaired revenues to cover ongoing costs, and decreased borrowing needs for companies cutting back production and investment. Support measures have also met a significant part of firms’ liquidity needs. Once these are phased out, there will likely be a rise in bankruptcies in hard-hit sectors. This could result in further tightening of credit standards for NFC lending in general and thus create renewed deleveraging pressure.  Overall, private debt as a percentage of GDP is likely to gradually decline going forward, also driven by denominator effects.  limited impact so far. Recent policy steps to discourage buy-to-let investment further reinforce the existing policy distortions favouring owner-occupancy over rental housing.    Main takeaways  The current account balance is significantly above norms implied by the fundamentals of the Dutch economy and is one of the highest in the euro area. The persistently high gap between savings and investment has possible adverse consequences for the allocation of resources and therefore growth and welfare. In addition, external rebalancing is important from the euro area perspective. Household debt, consisting mainly of mortgage debt, is high compared to relevant country-specific fundamentals and prudential benchmarks and the euro area average. Tax incentives encourage households to take on mortgage debt, while the private rental market remains underdeveloped.  Following a decline in recent years, the current account surplus is expected to increase somewhat, as the structural drivers supporting household and corporate savings remain in place and, from a trade perspective, the strong recovery in global goods trade supports net exports going forward. Nominal household debt keeps growing at a moderate pace amid continued house price rises.  The acceleration of the reduction in mortgage interest deductibility between 2020 and 2023 continues to take effect, although it only affects a small part of the mortgages and a generous subsidy remains. The agreement between social partners and government on the reform of the second-pillar pension system is currently going through the legislative process and will be phased in from January 2023, with full implementation envisaged by 2027. In the meantime, pension contributions have been raised; at the margin, this implies a further increase of the household savings surplus. The current highly expansionary fiscal stance should support domestic demand.     
 
 
Table 1.3: 

Selected economic and financial indicators, The Netherlands 

1. Assessment of Macroeconomic Imbalances 

(1) NIIP excluding direct investment and portfolio equity shares 
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation 
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash 
benefits, expressed as a percentage of gross wage earnings 

Source: Eurostat and ECB as of 2021-05-05, where available; European Commission for forecast figures (Spring forecast 2021) 

9 

2004-072008-122013-182019202020212022Real GDP (y-o-y)2.80.01.11.7-3.72.33.6Potential growth (y-o-y)1.80.90.71.81.01.40.8Private consumption (y-o-y)0.8-0.41.11.5-6.41.16.5Public consumption (y-o-y)3.01.40.51.60.62.71.3Gross fixed capital formation (y-o-y)6.2-4.13.64.6-3.62.62.3Exports of goods and services (y-o-y)6.62.04.52.7-4.36.45.2Imports of goods and services (y-o-y) 6.81.14.73.2-4.36.56.0Contribution to GDP growth:Domestic demand (y-o-y)2.4-0.70.52.0-3.41.73.5Inventories (y-o-y)0.00.00.1-0.20.10.00.1Net exports (y-o-y)0.40.80.5-0.1-0.40.60.0Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.40.20.30.80.40.60.0Capital accumulation (y-o-y)0.70.50.20.60.30.40.4Total factor productivity (y-o-y)0.70.30.10.40.40.40.4Output gap-0.6-1.2-0.91.4-3.7-2.5-0.2Unemployment rate4.94.85.93.43.84.34.4GDP deflator (y-o-y)2.01.01.13.02.41.91.7Harmonised index of consumer prices (HICP, y-o-y)1.51.91.02.71.11.61.4Nominal compensation per employee (y-o-y)2.32.51.12.94.91.50.9Labour productivity (real, person employed, y-o-y)1.7-0.10.5-0.2-3.2..Unit labour costs (ULC, whole economy, y-o-y)0.62.40.63.18.4-1.0-2.3Real unit labour costs (y-o-y)-1.31.4-0.50.15.8-2.9-4.0Real effective exchange rate (ULC, y-o-y)-0.30.3-0.2-0.2...Real effective exchange rate (HICP, y-o-y)-0.5-0.80.40.41.90.3-0.4Net savings rate of households (net saving as percentage of net disposable income)2.66.49.110.017.2..Private credit flow, consolidated (% of GDP)12.17.75.90.0...Private sector debt, consolidated (% of GDP)229.7244.9255.3234.0...of which household debt, consolidated (% of GDP)107.7116.9110.1100.3...of which non-financial corporate debt, consolidated (% of GDP)122.0128.0145.3133.7...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).2.42.31.7...Corporations, net lending (+) or net borrowing (-) (% of GDP)9.29.07.65.96.17.88.1Corporations, gross operating surplus (% of GDP)27.327.727.126.026.527.827.1Households, net lending (+) or net borrowing (-) (% of GDP)-2.41.33.22.36.05.32.4Deflated house price index (y-o-y)2.4-3.74.44.86.2..Residential investment (% of GDP)6.04.83.95.05.2..Current account balance (% of GDP), balance of payments7.77.210.09.97.88.18.7Trade balance (% of GDP), balance of payments8.58.410.610.410.6..Terms of trade of goods and services (y-o-y)-0.1-0.50.00.61.1-0.30.2Capital account balance (% of GDP)-0.4-0.30.00.00.0..Net international investment position (% of GDP)-5.510.352.690.0114.8..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-64.3-73.2-37.1-0.510.6..IIP liabilities excluding non-defaultable instruments (% of GDP) (1)326.3387.0384.9358.8368.4..Export performance vs. advanced countries (% change over 5 years)6.9-0.1-3.8-1.114.1..Export market share, goods and services (y-o-y)-1.5-2.70.8-0.66.2-1.4-0.1Net FDI flows (% of GDP)4.65.85.84.7-3.8..General government balance (% of GDP)-0.6-3.8-0.61.8-4.3-5.0-1.8Structural budget balance (% of GDP)..-0.30.8-2.0-3.4-1.7General government gross debt (% of GDP)47.159.761.248.754.557.956.8Tax-to-GDP ratio (%) (3)36.036.138.239.840.239.938.5Tax rate for a single person earning the average wage (%) (4)32.532.032.029.428.7..Tax rate for a single person earning 50% of the average wage (%) (4)23.421.618.014.714.0..forecast 
   
 
 
 
2.  THEMATIC ISSUE: EXTERNAL SECTOR 

The Netherlands has been recording a sizable current account surplus for more than two decades. 
It reached a peak of 10.8% in 2018, before narrowing to 9.9% in 2019 and further to 7.8% in 2020 under 
the  effect  of  the  crisis  (Table  1).  The  structural  surplus  in  the  balance  of  trade  in  goods  accounts  for 
nearly all of the surplus, while net exports of services and the primary income balance are much lower, 
though more volatile (Graph 2.1a). (1) The decline in 2020 was due to declining income account balances, 
both primary and secondary, that more than offset marginal improvements in the trade balance. 

The longstanding current account surplus can partly be explained by the economy’s fundamental 
characteristics. The current account surplus explained by the fundamentals (‘current account norm’) (2) 
equalled  4%  of  GDP  in  2019  (Table  2.1),  with  important  contributions  coming  from  high  per  capita 
output (relative to other countries), as well as from the financial centre status of the Netherlands. The fact 
that the Dutch surplus has consistently exceeded the norm points to a number of structural  factors closely 
linked to savings and investment decisions, including compulsory  savings  via the second-pillar pension 
system  combined  with  mortgage  repayments,  relatively  low  construction  investment  and  private  credit 
growth and the comparatively high structural fiscal balance (Graph 2.1b). (3)  

Prior to the COVID-19 crisis, all institutional sectors added to the substantial net lending position 
of  the  economy.  Following  a  switch  from  net  borrowing  to  lending  by  households  in  2009,  all  private 
institutional  sectors  have  consistently  been  recording  a  saving  surplus,  leading  to  an  overall  savings 
surplus  between  5%  and  11%  of  GDP  over  the  last  decade  (Graph  2.1c).  The  government’s  position 
moved from considerable borrowing of around 5% of GDP after the financial crisis, into a surplus over 
the  last  three  years  before  the  COVID-19  pandemic.  While  high  net  lending  could  point  to 
underinvestment domestically, the  comparison of aggregate investment  with the euro area average  does 
not point to a significant investment gap (Graph 2.1d). (4) Thus, high net lending is primarily explained 
by excess savings, with some important specific drivers across the corporate and household sectors. 

The  largest  contribution  to  the  headline  savings  surplus  stems  from  the  corporate  sector.  On 
average, the net lending of the (non-financial) corporate (NFC) sector (Graph 2.1c), accounted for 80% of 
the economy’s saving surplus since the early 2000s. Within the sector, the  net lending  of  multinational 
enterprises (MNEs) amounted to 4% of GDP on average, exhibiting considerable volatility (5), while the 
surplus  of  small  and  medium  companies  has  been  more  stable,  ranging  between  2%  and  3%  of  GDP. 
High  net  lending  by  MNEs  arises  due  to  their  global  profits,  which  are  attributed  to  their  Dutch 

(1)  While at least 3% of GDP of the goods surplus can be attributed to Rotterdam’s role as a global trade and logistics hub (and in 
particular  to  re-exports),  trade  in  services  and  primary  income  transactions  are  partly  related  to  activities  of  multinational 
enterprises  (MNEs),  i.e.  their  intra-group payments.  For  more  details, please  see  Suyker,  W.,  Wagteveld,  S.  (2019),  A  Fresh 
Look at the Dutch Current Account Surplus and its Driving Forces, CPB (Netherlands Bureau for Economic Policy Analysis), 
The Hague. 

(2)  ‘Current account norm’ is the current account balance that can be explained by fundamentals. It is based on an empirical setup 
similar to IMF’s EBA (Phillips, S., Catão, L., Ricci, L., Bems, R., Das, M., Di Giovanni, J., Unsal, D.F., Castillo, M., Lee, J., 
Rodriguez,  J.,  and  Vargas,  M.  (2013),  "The  external  balance  assessment  (EBA)  methodology",  International  Monetary  Fund 
Working Paper 13/272). Fundamentals are slow-moving variables including, e.g. natural resources, demographics, or relative 
income.  For  details  see  Coutinho,  L.,  Turrini,  A.,  Zeugner,  S.  (2018),  "Methodologies  for  the  assessment  of  current  account 
benchmarks", European Economy, Discussion Paper 86/2018.. 

(3)  The structurally high current account surplus has also led to an elevated net international investment position (NIIP). The Dutch 
NIIP turned positive in 2009 and has increased to 90% of GDP by 2019, driven by the accumulated current account surpluses. 
The NIIP excluding the non-defaultable instruments (NENDI) is balanced, so that the excess of external assets over liabilities is 
due  to  the  equity  component.  However,  gross  external  assets  and  liabilities  exceed  GDP  tenfold  (amounting  to  1171%  and 
1056% of GDP, respectively) due to strong MNEs presence.  

(4)  The same holds true also for the general government investment specifically. Importantly, although at a macro level there is no 
underinvestment relative to peer countries,  there are some ad hoc and industry-specific investment challenges in some areas, 
for instance linked to the ‘nitrogen problems’ affecting various sectors, including the construction industry. For more details, 
see European Commission (2020), Country Report The Netherlands 2020, Commission Staff Working Document SWD(2020) 
518 final, Publications Office of the European Union, Luxembourg, subsection 4.4 and box 4.4.1 in particular. 

(5)  This volatility is largely due to a single MNE in the oil sector which pays a fixed dividend to shareholders, implying that oil 
price  swings  translate  into  net  savings  and  retained  earnings  figures  almost  mechanically.  Please  see  European  Commission 
(2020), "Interpreting external sector statistics: taking into account the role of financial globalization and MNEs", Note for the 
attention of the EPC LIME Working Group, January. 

10 

 
                                                           
2. Thematic Issue: External Sector 

headquarters,  even  though  these  are  largely  being  retained  and  invested  abroad.  Thus,  their  (global) 
earnings  exceed  (domestic)  investment  leading  to  a  structural  saving  surplus.  As  for  the  small  and 
medium companies, especially those  with just a few shareholders, they typically distribute only a small 
portion  of  their  profits,  likely  due  to  fiscal  incentives  to  retain  earnings  and  defer  or  avoid  tax 
payments. (6)  

Households’  net  lending  position  turned  positive  after  the  global  financial  crisis.  On  average,  it 
equalled  slightly  less  than  3%  of  GDP  since  2009.  Its  evolution  was  driven  by  housing  market 
developments (low housing investment following the crisis and substantial deleveraging of households), 
relatively  weak  wage and disposable income growth  following the 2008-2009 financial crisis and large 
savings  in  the  form  of  relatively  high  (second-pillar)  pension  contributions,  which  are  widely  invested 
abroad (European Commission, 2020). The pension savings aspect is of a more structural nature and also 
reveals  that the contribution  of households to  the overall  savings surplus is  higher  than  recorded in the 
headline  statistics  on  sectoral  net  lending.  This  is  because  the  Dutch  pension  funds,  whose  ultimate 
beneficiaries are households, are large portfolio investors in foreign companies with substantial retained 
earnings  that  remain  attributed  to  their  home  country  in  national  accounts  until  they  are  distributed. (7) 
Even without adjusting for these statistical distortions, the household (gross) saving rate was consistently 
higher  than  the  saving  rate  of  the  euro  area  following  the  global  financial  crisis,  with  the  difference 
exceeding 3 percentage points of gross disposable income over most of the period (Graph 2.1e). (8)  

The  Covid-19  shock  caused  considerable  shifts  in  sectoral  positions,  but  overall  net  lending 
remained large in 2020. The general government moved to a substantial deficit related to fiscal support 
measures,  mainly  to  paid  subsidies  on  production.  As  a  result,  the  government  sector  net  borrowing 
amounted to 4.3% of GDP in 2020, versus net lending of 1.7% of GDP in 2019. This decline has partly 
been offset by a higher household savings surplus, which rose from 2.3% to 6.0% of GDP in 2020, mostly 
due to higher savings amid a strong decline in consumption (especially in 2020Q2), but partly also due to 
increased  disposable  income  (mainly  linked  to  support  measures).  Over  the  same  period,  the  NFCs’ 
saving surplus expanded from 4.7% to 5.7% of GDP, despite a large negative contribution from the oil 
sector amid low oil prices (see also footnote 5). The overall corporate sector recorded a milder increase 
from 5.9% to 6.1%, as financial corporations’ surplus declined to 0.4% of GDP in 2020, versus 1.1% in 
2019.  The  NFCs’  operating  surplus  slightly  increased  (in  nominal  terms)  during  2020,  supported  by 
higher  subsidies  on  production,  which  more  than  offset  the  decline  in  their  value-added.  Their  savings 
recorded  a  stronger  increase  as  companies  cut  back  shareholder  pay-outs  to  preserve  liquidity  and 
investments  have  been  reduced  due  to  increased  uncertainty. (9)  Based  on  the  Commission  Spring 
Forecast,  the  corporate  net  lending  position  is  projected  to  remain  large  at  roughly  the  same  levels  as 
before the COVID-19 pandemic. Household and general government positions are expected to gradually 
move toward their pre-crisis levels, so that the overall net lending position should increase somewhat over 
the forecast horizon. 

The impact of recent policy steps on the structural drivers of the savings surplus is uncertain. An 
agreement between social partners and government on a major reform of the second-pillar pension reform 
is  currently  going  through  the  legislative  process  and  will  be  phased  in  from  January  2023,  with  full 
implementation envisaged by 2027. While this addresses some key challenges  with the  existing  system 
and  lays  the  groundwork  for  more  individual  flexibility,  it  will  not  directly  reduce  the  high  level  of 
compulsory  household  savings  via  the  pension  system. (10)  Moreover,  in  the  meantime,  pension 

(6)  For more details, please see European Commission (2020), Country Report The Netherlands 2020, Commission Staff Working 
Document SWD(2020) 518 final, Publications Office of the European Union, Luxembourg, and De Nederlandsche Bank (DNB) 
(2019),  Het  Spaaroverschot  van  Nederlandse  Bedrijven  Ontrafeld,  DNB  Occasional  Study  Volume  17-4  9  december  2019, 
Amsterdam.  

(7)  There is a roughly offsetting effect for Dutch MNEs, which often have an internationally diversified shareholder base. For more 
details  on  this  and  other  statistical  discrepancies  in  the  allocation  of  net  lending  across  sectors,  please  see  European 
Commission  (2020),  Country  Report  The  Netherlands  2020,  Commission  Staff  Working  Document  SWD(2020)  518  final, 
Publications Office of the European Union, Luxembourg. In addition, the aforementioned fiscal incentives to retain profits in 
small and medium companies also artificially shifts a part of the saving surplus to the corporate instead to household sector.  
(8)  While the investment rate of households also exceeded the corresponding rate for the euro area for most of the last decade, the 

difference was smaller on average, but increasing to more than 3 percentage points in 2019. 

(9)  As  for  the  financial  corporations,  their  position  was  mainly  affected  by  the  decline  in  net  (received  minus  paid)  distributed 

income of corporations. 

(10)  From a policy perspective, high compulsory savings via the pension system (in combination with mortgage repayments) is a 
key  structural  driver  of  the  high  household  savings  surplus.  It  can  also  lead  to  suboptimal  consumption  smoothing  across 
different lifetime phases. Pension premiums are generally set as a fixed contribution percentage (typically around 20%) of gross 

11 

                                                           
2. Thematic Issue: External Sector 

contributions have actually been raised in 2020; this implies a further increase of the household savings 
surplus  in  the  near-term.  With  regard  to  the  corporate  sector,  some  recent  tax  reforms (11)  could  help 
address  incentives  for  SMEs  favouring  the  accumulation  of  retained  earnings  within  the  company. 
However, in practice this may shift part of small companies’ savings surplus to the household sector. The 
overall impact on the savings surplus therefore remains uncertain. 

Table 2.1: 

Selected external sector indicators, The Netherlands 

(1) Flow data refer to national account concept, unless indicated otherwise.  
(2) Cyclically adjusted CA is the CA adjusted for the domestic and foreign output gaps, taking into account trade openness.  
(3) The average CA needed in order to stabilise the NIIP is based on T+10 Ecfin projections.  
(4) The CA explained by fundamentals refers to the expected CA given the level of its fundamentals with respect to world 
average.  
(5) The CA or TB needed either to halve the distance to fund. NIIP benchmark, or to reach the prud. NIIP benchmark in 10Y, 
whichever is higher. Based on T+10  
(6) In case private-sector FDI is not available, total economy FDI is displayed.  
(7) VA imports as % of aggregate demand describes the % of aggregate demand that  is sourced from foreign value added.  

Source: (a) Eurostat, (b) Ameco, (c) European Commission calculations, (d) WIOD database. 

earnings. For more details, please see European Commission (2020), Country Report The Netherlands 2020, Commission Staff 
Working  Document  SWD(2020)  518  final,  Publications  Office  of  the  European  Union,  Luxembourg,  subsections  4.2.5  and 
4.2.6. 

(11)  These include the phasing out of tax-advantaged internally managed pension plans (‘Pensioen in eigen beheer’) since 2017, and 

making large debts owed by controlling shareholders to their companies partially subject to tax from 2022. 

12 

2003-072008-122013-172018201920202021f2022fFlows (1)Source:CA balance as % of GDP, NA(b)6.17.29.0|10.89.97.88.18.6CA balance as % of GDP, BoP(a)7.37.28.7|10.89.97.88.18.6Cyclically adj. CA balance as % of GDP (2)(c)4.77.18.1|10.810.010.68.99.1CA req. to stabilize NIIP above -35% (3)(c)-0.10.11.5|1.92.12.43.53.4CA explained by fundamentals (CA norm) (4)(c)3.64.54.0|4.14.04.03.73.6Required CA for specific NIIP target (5)(c)2.62.61.7|1.10.6-0.1-0.6-0.8Trade bal. G&S, % of GDP, NA(b)7.78.510.0|10.510.410.610.710.5Required TB for specific NIIP target (5)(c)1.42.01.9|2.72.21.61.31.1StocksNENDI as % of GDP(a)-67-73-44|-17011of which: net portfolio debt(a)-66-101-87|-59-50-39of which: net mutual fund shares(a)92333|333536of which: net other investment(a)-13-7-1|01-6NIIP as % of GDP(a)-51050|7290115117117Prudential NIIP/NENDI benchmark(c)-88-90-87|-89-89-88-89-88Fundamentally expl. NIIP benchmark (NIIP norm) (c)172742|4548504847Gen. Government NIIP(a)-28-34-28|-19-18-20Private Sector NIIP(a)-40-26-9|-1-10-19of which: Net FDI (6)(a)112244|495146MFI (excl CB) NIIP(a)-41-60-49|-36-27-19Oth. financials NIIP(a)100112122|116138168Central bank NIIP(a)41715|1175of which: Reserves(a)355|455of which: Target2(a)108|1265Value-added trade and capital accountVA imports % of agg. demand (7)(d)333741|Capital account bal. as % of GDP, NA(b)0.1-0.5-0.2|-0.10.00.00.00.0Indicators in % of potential GDPCA balance as % of potential GDP, NA(b,c)6.17.08.8|11.010.17.57.98.6CA balance as % of potential GDP, BoP(a,c)7.27.18.6|11.010.17.57.98.6Cyclically adj. CA balance as % of potential GDP (c)4.67.08.0|10.910.110.28.79.0Trade bal. G&S, as % of potential GDP, NA(b,c)7.68.49.8|10.710.610.210.510.5NENDI as % of potential GDP(a,c)-67-72-43|-17010NIIP as % of potential GDP(a,c)-51049|7391111114117Capital account bal. as % of potential GDP, NA(b,c)0.1-0.5-0.2|-0.10.00.00.00.0 
          
 
 
 
 
                                                                                                                                                                          
Graph 2.1: 

Thematic Graphs: External sector 

2. Thematic Issue: External Sector 

Source: European Commission Services 

13 

0510152025average2005-2009average2012-2019% of GDP(d) Gross fixed capital formation vs. EA DwellingsOther constructionEquipmentOther investmentDwellings (EA19)Other construction (EA19)Equipment (EA19)Other investment (EA19)Total 2019Total (EA19) 2019Source: Ameco-3-2-1012345051015202530040506070809101112131415161718192021'22'y-o-y                  % change%(e) Household saving rateGross household saving rate Euro Area 19 (lhs)Gross household saving rate Netherlands (lhs)Real adj. gross disposable income Netherlands (y-o-y %) (rhs)Source: Eurostat and AmecoNote: forecast figures are for unadjustedreal gross disposable income-10-8-6-4-20210111213141516171819202122% of potential GDP(b) Structural fiscal balance as % of potential GDPWorld average*GermanyNetherlandsRest of euro areaSource: Ameco,for euro area Member States-10-505101505060708091011121314151617181920*21*22*% of GDP(c) Net lending/borrowing by sectorHouseholds and NPISHGeneral governmentCorporationsTotal economySource: Ameco-10-50510152013141516171819202122% of GDP(a) Current account decompositionGoods, fcstServices, fcstGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc balanceSecondary inc balanceCurrent account balanceNet lending/borrowingSource:Eurostat and Ameco  
 
 
3.  THEMATIC ISSUE: PRIVATE INDEBTEDNESS AND HOUSING 

Overall situation  

The  private  debt-to-GDP  ratio  continued  to  decline  until  2019  but  increased  somewhat  in  2020. 
High  private  debt  has  been  a  long-standing  challenge  for  the  Netherlands.  It  reached  234%  of  GDP  in 
2019, down from 244% the year before. Preliminary data for 2020 suggest that it saw a slight increase (to 
235%  of  GDP  in  Q4  2020).  Both  household  debt  and  corporate  debt  are  among  the  highest  in  the  EU 
relative  to  GDP  and  well  above  relevant  benchmarks  (see  Graphs  3.1(a)  and  3.1(b)).  Household  debt 
(consolidated) stood at 100% of GDP in 2019 (103% in Q4 2020), above both the prudential threshold 
(61% of GDP) and fundamental benchmark (77% of GDP). (12) Non-financial corporate debt amounted to 
134% of GDP in 2019 (131% of GDP in Q4 2020), exceeding the prudential threshold (94% of GDP) and 
fundamental benchmark (112% of GDP). However, around 60% of this debt is owed by multinationals. 
As  multinationals’  debt  largely  consists  of  intra-group  debt,  the  macro-economic  risks  appear  to  be 
limited. Therefore, household debt represent the main reason for concern. 

While  the  COVID-19  crisis  has  reinforced  some  existing  vulnerabilities,  its  overall  impact  on  the 
private debt stock is still uncertain. The COVID-19 shock reversed the decline of private debt observed 
in previous years. However, the increase of debt-to-GDP ratios in 2020 was driven by the contraction of 
GDP by 4%, with the nominal debt stock actually declining somewhat. While there was a slight pick-up 
in non-performing loans (NPLs), they remained at a very low level and overall financial stability has not 
been affected so far (see below). Although this is partly linked to temporary support measures and debt 
moratoria and there remains some broader macroeconomic uncertainty following the COVID-19 crisis, at 
the  current  juncture  the  vulnerabilities  associated  with  the  high  private  debt  stock  do  not  pose  an 
immediate significant risk to financial stability.   

Household debt 

Household  debt  as  a  share  of  GDP  declined  in  2019  but  increased  significantly  in  2020.  The  net 
credit flow to households stood at 1.2% of GDP in 2019 and is estimated at 1.3% for 2020 (Table 3.1). 
While robust real GDP growth and inflation contributed to passive deleveraging in 2019 (Graph 3.1(c)), 
the GDP decline in 2020 drove an increase of the household debt-to-GDP ratio by around 3 p.p. The stock 
of household debt consists  mainly of  mortgage  debt and there the COVID-19 pandemic has only had a 
limited  impact  as  house  prices  continued  to  rise  (see  details  below).  By  contrast,  consumption  loans 
experienced  a  major  decline  in  2020,  but  they  represent  only  a  small  fraction  of  total  household 
borrowing  (Graph  3.1(d)). Therefore,  the  overall  credit  flow  to  households  remained  positive  and  even 
slightly accelerated. At the same time,  there has been a significant increase in household savings as the 
COVID-19  pandemic  containment  measures  constrained  consumption  (Graphs  3.1(e)).  The  ratio  of 
household debt to gross financial assets has been on a long-term declining path (29% in 2019), which is 
likely to continue. 

Policy  distortions  underpin  the  high  household  debt  stock.  High  mortgage  debt  has  been  driven  by 
long-term  policy  distortions  in  the  housing  market  (see  below)  and  tax  incentives  for  mortgage 
borrowing.  In  particular,  mortgage  interest  on  owner-occupied  homes  is  treated  as  a  fully  deductible 
expense in income taxation. Dutch authorities have taken some steps to limit this, both by disqualifying 
new interest-only mortgages from tax deductibility (in force since 2013) and by reducing the maximum 
applicable rate at which mortgage interest is deductible. However, this reduction only affects households 
in the top tax bracket (some 10% of the labour force) and the eventual rate of 37% (to be reached in 2023) 
still signifies a strong implicit subsidy on mortgage borrowing. 

(12)  Country-specific  prudential  thresholds  are  the  values  beyond  which  countries  are  deemed  more  vulnerable  to  crises  given 
characteristics  such  as  relative  income,  public  debt,  and  the  ratio  of  regulatory  bank  capital  to  risk-weighted  assets. 
Fundamentals-based benchmarks are derived from regressions capturing the main determinants of credit growth (e.g.  expected 
growth, house prices, unemployment) and taking into account a given initial stock of debt. 

14 

 
 
                                                           
3. Thematic Issue: Private Indebtedness and Housing 

Financial  stability  risks  from  elevated  household  debt  appear  contained.  While  the  share  of 
household debt on gross disposable income stands at 200%, almost double than on GDP, NPLs on Dutch 
mortgages have historically remained very low, even during  major macroeconomic and housing  market 
downturns, e.g. following the 2008-2009 financial crisis. The impact of the COVID-19 crisis on mortgage 
loan  performance  has  so  far  been  very  limited  as  well,  in  part  thanks  to  income  support  measures  and 
mortgage  moratoria.  Once  these  are  wound  down,  some  households  may  face  repayment  difficulties. 
However,  the  crisis  has  disproportionally  affected  lower-income  workers  (who  tend  not  to  be 
home-owners)  and  the  impact  on  employment  has  been  very  limited  so  far.  Furthermore,  Dutch  banks 
entered the crisis with robust capital levels (the Tier 1 ratio stood at 18.9% in 2019) and house prices are 
expected  to  continue  growing,  contrary  to  the  financial  crisis.  Therefore,  near-term  risks  to  financial 
stability from elevated household debt appear limited.   

Corporate debt 

Despite  the COVID-19 shock, corporate debt  appears to have remained broadly stable relative to 
GDP in 2020. Following active NFC deleveraging in 2019,  which  was also supported by inflation (see 
Graph 3.1(f)), there was a sharp pick-up in short-term borrowing and bond issuance in early spring 2020 
due  to  acute  liquidity  needs  and  precautionary  build-up  of  financial  reserves.  Preliminary  data  indicate 
this has more than reverted back in the second half of 2020, ultimately leaving NFC borrowing somewhat 
below the 2019 level in nominal terms (see Graph 3.1(c)). Overall, this reflects the offsetting effects of 
increased  demand  for  credit  from  firms  with  impaired  revenues  to  cover  ongoing  costs,  and  lower 
borrowing needs as firms cut back production and investment. In addition, government support measures 
and  moratoria granted by banks  have  met a  significant part of firms’ liquidity  needs. In  terms of credit 
supply, banks have also tightened their lending standards for corporates (see Graph 3.2(a)). 

While the corporate debt-to-GDP ratio is rather high, a significant share of corporate debt is intra-
group  debt  of  multinational  companies.  The  headline  debt  ratios  overstate  actual  exposure,  as  about 
60% of total NFC debt is linked to  multinationals and consists largely of intragroup debt.  When this is 
excluded,  corporate  debt  levels  are  not  particularly  high  by  international  comparison  and  relative  to 
relevant benchmarks. (13) 

Despite  the  impact  of  the  COVID-19  crisis,  vulnerabilities  associated  with  corporate  debt  appear 
unlikely to raise immediate financial stability concerns. So far, the crisis has had limited impact thanks 
to  support  measures  and  moratoria,  with  the  corporate  bankruptcy  rate  in  2020  actually  significantly 
lower than in 2019. Once these are phased out, there may be a rise in bankruptcies and credit losses for 
banks.  While  the  overall  NPL  ratio  (to  total  loans  and  advances)  remains  low  in  a  cross-country 
comparison, the NPL ratio for NFCs has already started to increase (from 1.5% in Q1 2020 to 2% in Q3). 
This  could  contribute  to  further  tightening  of  credit  standards  for  NFCs  beyond  that  observed  in  2020 
(Graph  3.2(b))  and  thus  create  renewed  deleveraging  pressure.  However,  in  light  of  the  comparatively 
small bank exposure to riskier corporate lending (e.g., total SME lending represents about 7% of overall 
banking assets) and their robust capital levels, risks to financial stability from NFC debt seem contained 
as well. 

Housing market 

House  prices  have  been  growing  sharply  over  the  past year  and  there  are  signs  of  overvaluation. 
Real  house  prices  started  to  recover  in  2013  and  were  gradually  accelerating  until  2018  (7.1%  YoY 
growth), and following a slowdown in 2019 (4.8%), house price growth (7.3% in 3Q) and market activity 
picked up again in 2020 (Graph 3.2(c)). In addition to the impact from the COVID-19 shock (see below), 
house price growth was likely also boosted by transfer tax changes: a rise in transfer taxes for buy-to-let 
investors  from  January  2021  led  to  a  spike  in  investor  demand  in  the  second  half  of  2020,  and  the 
abolishment  of  transfer  taxes  for  younger  households  from  the  same  date  subsequently  increased  the 
bidding  power  of  this  cohort.  There  has  been  some  regional  differentiation  and,  in  a  break  with  long-
standing  prior  trends,  growth  has  been  stronger  outside  the  major  cities  in  2020.  Valuation  metrics 
suggest that prices in the Netherlands are getting into overvaluation territory (Graph 3.2(d)), and beyond 

(13)  For more details, please see European Commission (2020), Country Report The Netherlands 2020, Commission Staff Working 

Document SWD(2020) 518 final, Publications Office of the European Union, Luxembourg, subsection 4.2.3. 

15 

                                                           
3. Thematic Issue: Private Indebtedness and Housing 

what fundamentals such as income would suggest (overall valuation gap is +10% but fundamental-based 
gap is +20%).  

Following the COVID-19 shock, house price growth has accelerated. On the demand side, mortgage 
rates further declined and household disposable income increased due to supportive policy measures. As 
in other countries, households may gradually shift their preferences in favour of more time spent at home, 
inducing willingness to spend a higher share of their incomes on housing and/or to purchase larger homes 
away  from  major urban centres, thus pushing up  house price  growth  in regional locations in particular. 
Moreover,  increased  demand  can  come  also  from  investors  facing  uncertainty  and  lack  of  alternative 
investment opportunities. There was indeed a strong increase in investor interest following the COVID-19 
outbreak, with the share of owner-occupied homes bought by private landlords nearly doubling from pre-
COVID-19 levels towards the end of 2020, although this was primarily driven by the transfer tax changes 
mentioned  above.  On  the  supply  side,  the  COVID-19  shock  appears  to  have  had  limited  impact,  as 
housing completions and starts were broadly in line with pre-crisis expectations and residential building 
permits picked up in 2020 (Graph 3.2(e)). 

Several  structural  factors  contribute  to  upward  pressure  on  house  prices.  The  short-term 
developments  discussed  above  were  coupled  with  some  long-term  factors  underpinning  high  housing 
prices.  On  the  demand-side,  there  is  favourable  tax  treatment  of  owner-occupied  housing  via  mortgage 
interest  deductibility  in  personal  income  taxation  as  well  as  owner-occupied  homes  not  normally  being 
subject  to  asset  taxation  under  ‘box  3’. (14)  At  the  same  time,  there  is  a  lack  of  suitable  alternatives  to 
owner-occupancy  due  to  an  underdeveloped  rental  market.  On  the  supply  side,  while  the  share  of 
residential investment on GDP has been increasing for several years (Graph 3.2(e)), housing construction 
has  fallen  short  of  demographic  requirements  since  the  housing  market  downturn  following  the  2008 
crisis.  This  is  linked  to  unaddressed  capacity  shortages  in  the  construction  sector  and  planning 
constraints. (15) 

While house price growth is expected to slow down, upward pressure on house prices remains. The 
negative  income  impact  of  the  crisis  was  to  a  large  extent  cushioned  by  support  measures  (GDI  of 
households increased by about 5% in 2020). However, the crisis disproportionally affected lower-income 
households, who tend to be tenants rather than home-owners.  Moreover, some households will exit the 
crisis with additional savings resulting from curtailed consumption. The aforementioned structural factors 
supporting  house  prices  are  also  set  to  remain  in  place.  Overall,  house  prices  are  therefore  likely  to 
continue  growing,  albeit  at  a  slower  pace.  While  this  does  not  represent  a  major  immediate  risk  for 
financial stability, the combination of high household debt and house prices diverging from fundamentals 
points to long-term vulnerabilities. High house  prices in the  owner-occupier  market combined  with and 
underdeveloped private rental sector also represent a significant burden for  younger and middle-income 
households. 

The Netherlands has taken policy steps to discourage buy-to-let investment. As mentioned above, the 
transfer tax for private landlords has been raised from 2% to 8% of the property value from January 2021 
(while  for  owner-occupiers  up  to  35  years  old  it  has  been  abolished (16).  In  addition,  rent  increases 
(Graph 3.2 (f)) in the private rental sector have been capped, and legislation is under preparation allowing 
municipalities to ban buy-to-let purchases  for a  five-year  period. These  measures  may  further reinforce 
the  existing  policy  distortions  favouring  owner-occupancy  over  rental  housing  and  risk  undermining 
efforts to boost the availability of private rental housing for middle-income households. 

(14)  For more details, please see European Commission (2020), Country Report The Netherlands 2020, Commission Staff Working 

Document SWD(2020) 518 final, Publications Office of the European Union, Luxembourg, p. 34-35. 

(15)  For more details, please see European Commission (2020), Country Report The Netherlands 2020, Commission Staff Working 

Document SWD(2020) 518 final, Publications Office of the European Union, Luxembourg, subsection 4.2.4. 

(16)  From April 2021, this will only be the case for purchases below EUR 400,000; for properties above this price level, the standard 

2% transfer tax will apply.  

16 

                                                           
Table 3.1: 

Household debt indicators, The Netherlands 

3. Thematic Issue: Private Indebtedness and Housing 

(f) European Commission forecast 
(1) Benchmarks for flows (% of GDP) are estimated on the basis of non-consolidated flows.  
(2) Gross non-performing bank loans and advances to Households and non profit institutions serving households (% of total 
gross bank loans and advances to Households and non profit institutions serving households).  
(3) Quarterly data is annualized. 
Sources: (a) Eurostat, (b) Ameco, (c) European Commission calculations, (d) ECB. 

17 

2003-072008-122013-17201920202021f|20Q220Q320Q4SourceStocksDebt, consolidated (% of GDP)(a,d)106117110100103|102103103Debt, consolidated (% of potential GDP)(a,b,d)105115109102100|100100100Prudential threshold (% of GDP)(1)(c)514857656161|Fundamental benchmark (% of GDP)(1)(c)697577737777|Debt (% of gross disposable income)(a,b,d)209234220204200|201201200Interest paid (% of gross disposable income) (3)(a,b)6.65.62.11.7|1.21.0Debt (% of gross financial assets)(a,d)43.043.434.129.0|27.027.026.8Share of variable rate loans for house purchase (%)(d)27.221.117.118.715.1|Domestic  loans in forex (% of dom. loans)(d)0.10.20.20.10.1|FlowsCredit flows (transactions, % of GDP) (4)(a)7.33.00.61.21.70.5|2.12.52.0Benchmark for flows (% of GDP)(c)3.72.51.52.02.01.9|Savings rate (% gross disposable income)(b)9.913.615.816.623.322.6|Investment rate (% gross disposable income)(b)14.411.810.313.013.113.2|p.m. Bank HH NPLs (% of HH loans)(2)(d)1.5| 
 
 
 
 
      
 
Table 3.2: 

Selected housing indicators, The Netherlands 

3. Thematic Issue: Private Indebtedness and Housing 

(') Forecast. The forecast of house prices is computed on the basis a housing valuation model shared with Member States in 
the context of the EPC LIME working group. The forecasts represent real house price percentage changes expected based 
on economic fundamentals (population, disposable income forecast, housing stock, long-term interest rate, and the price 
deflator of private final consumption expenditure), as well as the error correction term summarising the adjustment of prices 
towards their long-run relation with fundamentals. The source for the forecast of other variables is Ameco. 
(1) Price to income in level is the number of years of income necessary to buy an assumed 100m2 dwelling. See Bricongne, J-
C, A Turrini, and P Pontuch, 2019, “Assessing House Prices: Insights from HouseLev, a Dataset of Price Level Estimates”, 
Discussion Paper 101, European Commission, available in "https://ec.europa.eu/info/publications/assessing-house-prices-
insights-houselev-dataset-price-level-estimates_en".  
(2) Price to income and price to rent gaps are measured in deviation to the long term average (from 1995 to the latest 
available year).  
(3) The model valuation gap is estimated in a cointegration framework with nominal house prices as the dependent variable 
and five fundamental explanatory variables:  total population, real housing stock, real disposable income per capita, real 
long-term interest rate and price deflator of final consumption expenditure. See Philiponnet and Turrini, Assessing House Price 
Developments in the EU (2017) available in "https://ec.europa.eu/info/publications/economy-finance/assessing-house-price-
developments-eu_en" and revision notes presented to LIME in October 2019 and June 2020.  
(4) The average house price gap is the simple average of the price-to-inome, price-to-rent and model valuation gaps. 
Source: Eurostat, OECD, ECB, BIS, Ameco, national sources, European Commission calculations. 

18 

2003-072008-122013-1720182019202020Q120Q220Q320Q4House price developmentsUnitSourceReal house price, yoy growth%(a)2.0-3.61.27.14.86.34.35.37.77.2Nominal house price, yoy growth%(a)4.1-2.52.29.57.37.66.37.18.48.7Price to income in level (1)years(b)12.611.810.211.511.912.012.610.712.712.1Valuation gapsPrice to income gap (2)%(c)13.97.5-7.24.18.08.87.27.99.410.1Price to rent gap (2)%(c)15.99.1-13.5-1.92.77.64.76.58.89.8Model valuation gap (3)%(c)12.69.5-5.96.09.818.014.116.819.620.8Average house price gap (4)%(c)14.18.7-8.82.76.911.58.710.412.613.6Housing creditMortgages (% GDP)%(d)62.058.061.561.860.461.9Mortgages, yoy growth%(d)4.50.54.6-0.52.31.1Housing supplyResidential construction - dwellings  (% GDP)%(e)5.94.93.64.95.05.2Residential construction - dwellings, yoy growth%(e)5.6-9.39.69.31.6-2.7Non-residential construction (% GDP)%(e)5.65.95.35.35.55.7Value added in the construction sector, yoy growth%(e)4.6-3.94.14.85.1-0.8Building permits, yoy growth%(a)5.8-15.016.62.7-19.012.6Number of transactions, yoy change%(f)1.9-9.617.5Other housing market indicatosShare of owner-occupiers, with mortgage or loan%(a)56.459.660.260.560.460.8 
 
          
 
Graph 3.1: 

Thematic Graphs: Private indebtedness and housing 

3. Thematic Issue: Private Indebtedness and Housing 

Source: European Commission Services 

19 

0.020.040.060.080.0100.0120.0140.09899000102030405060708091011121314151617181920% of GDP(a) Household debt and benchmarksHousehold debt, %GDPFundamentals-based benchmark, household debtPrudential benchmark, household debtSource: Eurostat and European Commission020406080100120140160180030507091113151719% of GDP(b) Non-financial corporations debt and benchmarks NFC debt, consolidated,  % of GDPFundamentals-based benchmark, % of GDPPrudential benchmark, % of GDPSource: Eurostat and European Commission-8-6-4-202468100708091011121314151617181920y-o-y change(c) Decomposition of household debt flowsCredit flowReal growthInflationOther changesD/GDP, changeSource: Eurostat and Ameco01020304050607006070809101112131415161718192021*% of GDP(d) Bank loans to households by typeLoans for house purchaseLoans for consumptionLoans for house purchase, EALoans for consumption, EASource: ECB BSI-6-4-2024681006Q307Q308Q309Q310Q311Q312Q313Q314Q315Q316Q317Q318Q319Q320Q3% of GDP(e) Households net acquisition of financial assets    depositspension & life insuranceother insurancesecurities & equitymiscellaneous assetsnet other accountstotal fin asset acq (ex F8)new loans borrowedSource: Calculations based on Eurostat-15-10-505101520070809101112131415161718192020Q4y-o-y change(f) Decomposition of y-o-y changes in debt-to-GDP ratios, NFC (consolidated)Credit flowReal growthInflationOther changesD/GDP, changeSource: ECBBank Lending Survey  
 
Graph 3.2: 

Thematic Graphs: Private indebtedness and housing (cont.) 

3. Thematic Issue: Private Indebtedness and Housing 

Source: European Commission Services 

20 

-150-100-5005010008Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q2(a) Factors affecting loan demand from NFCs (ECB Bank Lending Survey) Fixed investmentInventory and working capitalAlternative external financingInternal financingInterest rate levelOtherActualexpectationsTighteningEasingSource: ECB -60-40-2002040608010012008Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q2(b) Factors affecting credit supply for NFCs (ECB BLS)banks' risk tolerance (from 2015)risk perceptionscompetitioncost of funds and balance sheet constraintsActualexpectationsTighteningEasingSource: ECB -20-15-10-505101520250002040608101214161820% deviation of current price(d) Overvaluation gapsModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gapSource: EuropeanCommission0.01.02.03.04.05.06.07.0050100150200250050709111315171921*% of GDP2015=100(e) Residential Investment and Building Permits (2015=2010) Residential Building Permits - number (2015=100)Residential Building Permits - m2 (2015=100)Residential Investment (% of GDP, right axis)Source: Calculationsbased on Eurostat, ECB607080901001101201301400708091011121314151617181920index (2010=100)(f) House prices and rentsHouse pricesRentSource:Eurostat-12-10-8-6-4-202468102040608010012014016002Q303Q304Q305Q306Q307Q308Q309Q310Q311Q312Q313Q314Q315Q316Q317Q318Q319Q320Q3Rate of change y-o-y (%)2015 = 100(c) Real house priceIndex 2015 = 100y-o-y % change (rhs)Source: Calculationsbased on Eurostat, ECB