Statement by the IMF Staff Representative June 29, 2005

This Netherlands’s 2005 Article IV Consultation reports that raising participation and productivity are important for boosting the economy potential and reducing pressures on the public finances in the face of population aging. The authorities have implemented or are in the process of implementing key reforms, including by tightening disability and unemployment benefits and early retirement arrangements, lessening inactivity traps, enhancing competition, and reducing the administrative burden. The financial system remains sound, resilient to potential adverse shocks, and well supervised.

Abstract

This Netherlands’s 2005 Article IV Consultation reports that raising participation and productivity are important for boosting the economy potential and reducing pressures on the public finances in the face of population aging. The authorities have implemented or are in the process of implementing key reforms, including by tightening disability and unemployment benefits and early retirement arrangements, lessening inactivity traps, enhancing competition, and reducing the administrative burden. The financial system remains sound, resilient to potential adverse shocks, and well supervised.

1. This staff statement provides information on economic developments that has become available since the preparation of the staff report for the 2005 Article IV Consultation.

The new information does not alter the thrust of the staff appraisal.

2. On GDP data and projections: Downside risks to the growth outlook appear to have materialized with much weaker-than-expected activity in the first quarter of 2005. Preliminary data for that quarter show that GDP fell by 0.1 percent (quarter-on-quarter), mainly reflecting a sharp fall in investment (of 3.1 percent, following a 4.7 percent rise in the fourth quarter of 2004) and a negative contribution of the foreign sector (with exports declining by more than imports). Meanwhile, private consumption remained lackluster.

The weak first quarter, combined with a markdown in export market growth, gives rise to a substantial revision of the staff forecast for 2005 and—to a lesser extent—2006. This is shown in the table below.

The revised forecast of the Dutch central bank (DNB), released on June 15, also reflects the weak first quarter (see table). The reduction in the DNB’s growth projection for 2005 results especially from downward revisions of private consumption and net exports. For 2006, the revision predominantly reflects a more pessimistic view of private consumption than before.

Revised GDP Growth Projections

(in percent)

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3. On structural reforms: Parliamentary approval of further disability reforms is still pending. The plans that were discussed at the time of the mission may be amended, and implementation could be delayed beyond January 2006.

Kingdom of the Netherlands—Netherlands: Staff Report for the 2005 Article IV Consultation
Author: International Monetary Fund