Abstract
Strong macroeconomic foundations have so far largely shielded the Netherlands from recent financial turbulence. Despite a tightening labor market, inflation remains subdued. Employment has grown 1¼–1½ percent in 2007, on par with the rest of the Euro area. The external current account surplus remains large, and various approaches suggest that Dutch competitiveness is satisfactory. Fiscal performance, while staying strong, has been mildly procyclical since 2007. Long-term fiscal sustainability remains elusive, owing to population aging and its attendant budgetary costs.
1. This statement summarizes developments in the Netherlands since the issuance of the staff report. The additional information does not change the thrust of the staff appraisal.
2. Economic growth slowed in the first quarter of 2008, while inflation remains significantly below the euro area average.
Real GDP rose by 0.2 percent in the first quarter of 2008, the lowest quarter-on-quarter rate for three years. This is below the preliminary estimate of 0.7 percent quarterly growth in the euro area. However, expansion from the same quarter of last year—at 3.1 percent—continues to exceed the euro area average (2.2 percent), because of strong growth in the latter part of 2007. The slowdown reflects a deceleration of consumption, especially in consumer durables, and exports. In contrast, business investment stayed strong.
Harmonized inflation dipped to 1.7 percent (12-month change) in April from a recent peak of 2.0 percent in February. It remains well below the 3.3 percent euro area rate, the result of comparatively smaller price increases for food, rent, and energy in the Netherlands.
These developments in GDP growth and inflation are both broadly consistent with the projections in the staff report.