Statement by the IMF Staff Representative

The staff report for the 2004 Article IV Consultation on the Kingdom of the Netherlands—Netherlands highlights the economic developments and policies. The economy is beginning to emerge from an extended downturn. Meanwhile, against a background of soft labor market conditions and economic slack generally, inflation pressures are low. The authorities acknowledged the economic reasoning behind these recommendations, but considered implementation politically difficult in light of a cultural preference for an egalitarian wage distribution.

Abstract

The staff report for the 2004 Article IV Consultation on the Kingdom of the Netherlands—Netherlands highlights the economic developments and policies. The economy is beginning to emerge from an extended downturn. Meanwhile, against a background of soft labor market conditions and economic slack generally, inflation pressures are low. The authorities acknowledged the economic reasoning behind these recommendations, but considered implementation politically difficult in light of a cultural preference for an egalitarian wage distribution.

1. This staff statement provides information on economic developments that has become available since the preparation of the staff report for the 2004 Article IV Consultation. The new information does not alter the thrust of the staff appraisal.

2. On GDP:

  • According to Statistics Netherlands, real GDP growth on a year-average basis was revised for 2001–03 as shown in the table below. Average growth during these years was therefore slightly stronger than previously thought: 0.4 percent, up from 0.2 percent.

Real GDP Growth

(In percent)

article image
Source: Statistics Netherlands (CBS).
  • Regarding the current year, the second quarter GDP figures were, on balance, in line with staff's overall forecast of about 1 percent real growth in 2004. The preliminary data for that quarter indicated that real GDP fell by 0.2 percent quarter-on-quarter (seasonally and working-day adjusted), but grew by 1.1 percent year-on-year. Investment dropped and was weaker than expected, but the contribution of the foreign balance was stronger than expected.

3. In the area of fiscal policy, a new package of multi-year fiscal adjustment measures was announced, amounting to a cumulative 750 million by 2007 (equivalent to 0.2 percent of estimated 2004 GDP). The measures, which are aimed at making some further progress toward narrowing the fiscal deficit over the medium term, are mainly in the areas of infrastructure, education, and health care. While a step in the right direction, the package, given its modest size, does not go far enough in terms of meeting staff's call for stepping-up the medium term fiscal consolidation effort.

4. In other developments, recent indicators are consistent with the slow recovery forecasted for this year. While both consumer and producer confidence have recovered from their lows of the summer of 2003, these indicators have failed to show significant further improvement in recent months. Year-on-year HICP inflation fell to 1.2 percent in July, despite higher oil prices.

Kingdom of the Netherlands—Netherlands: Staff Report for the 2004 Article IV Consultation
Author: International Monetary Fund