Dutch Exports: Sustaining success
Record surpluses pose new challenges
Mark Cliffe
Chief Economist ING Group
Nationaal Export Event
Rotterdam, November 14, 2013
The Netherlands depends on exports…
Some countries are more than twice as reliant on exports as others
Exports, as % of GDP (2012)
100
Goods
Other services
Tourism
Domestic value added embodied in exports
90
80
70
60
50
40
30
20
57
56
56
47
38
34
26
26
26
24
21
21
20
10
0
2
…and this dependence has been rising
Exports of goods and services
% GDP
100%
80%
60%
 Dutch exports as % of GDP
rose from 50% in 1996 to
more than 80% in 2012,
NL
indicating the very open
BEL
character of the Dutch
economy.
 Even when corrected for reGER
exports. the export-GDP
NL excl.
ratio is still relatively high.
re-exports
40%
UK
20%
JPN
US
0%
'95 '96 '97 '98 '99 '01 '02 '03 '04 '05 '06 '08 '09 '10 '11 '12
Source: IMF, CBS, ING calculations
3
High in the world league table…
Share of exports of goods and services in world exports
 A small country but a large
Average 2008 - 2012
10
%
10
trader
9
9
8
8
 During the past 5 years the
7
7
Netherlands ranked 7th on
6
6
5
5
4
4
3
3
2
2
1
1
0
0
US
CN
DE
JP
FR
UK
NL
'Home-made' products and services
IT
KR
the list of export champions
 Even excluding re-exports, it
comes in 9th
RU
Re-exports*
* share of re-exports is, except for NL, an estimate based on various studies for various years
Source: UNCTAD, ING calculations
4
…high in competitiveness rankings…
The 8th globally most competitive economy and 2nd in the Eurozone
Global ranking of competitiveness
Competitiveness in EU regions
1
2
3
4
5
5
6
7
7
8
8
8
8
9
10
11
10
10
11
12
2006 2007 2008 2009 2010 2011 2012 2013
Source: World Economic Forum
5
…including price competitiveness…
Unit labour cost, manufacturing industry
Index, Q1 2000 = 100
170
160
150
140
130
120
110
100
90
80
70
60
50
1Q 2000=100, mfg industry
ITA
GRE
SPA
FRA
NL
GER
IRL
00 01 02 03 04 05 06 07 08 09 10 11 12 13
6
…generating huge surpluses
Sustained surpluses have boosted Dutch external assets
Gross government debt 2014F (% of GDP)
180
GR
160
140
IT
JN
120
BE
US
UK
PT
CY
IE
100
FR
ES
80
60
NL
DE
SI
SK
FI
40
20
-75%
AT
-25%
25%
75%
125%
Net external liabilities 2011 (% of GDP)
7
Nearby markets still account for >80% of exports
2012
2011
2010
2005
2000
1995
Emerging Europe
Other developed*
Western Europe
Middle East &
North Africa
Emerging Asia
Latin America
* Other developed= US, Canada,
Australia, N. Zealand, Japan,
Korea, Singapore
Source: UNCTAD, ING calculations
Other Africa
8
The Netherlands depends on Eurozone trade
Re-exports boost its surplus with the rest of Europe and its deficit with Asia
Trade balance as % of GDP (2000-2012)
 The Netherlands runs huge
20
and growing trade surpluses
15
with the Eurozone…
10
 …amounting to over 15% of
5
GDP in 2012…
0
 …it even runs a big surplus
-5
with Germany
 Surplus with Eurozone more
-10
than offsets deficits with the
-15
'00
'01
'02
'03
'04
'05
Core EZ countries
Other Western Europe
Eastern Europe
Latin America
'06
'07
'08
'09
'10
'11
'12
Peripheral EZ countries*
Asia
Africa & Middle East
North America and Oceania
rest of the world
* Peripheral countries = Greece, Ireland, Italy, Portugal, Spain
Source: CBS, ING calculations
9
Post crisis rebound in exports
Spain and Portugal surpass Germany
Export of goods and services
Volume index, SA, trough = 100
 After the Lehmans crash,
140
exports have generally risen
by over 20% to regain their
130
pre-crisis levels
120
 Spain and Portugal have
110
outpaced Germany and the
US
100
-2yr
-1yr
0
+1yr
+2yr
+3yr
+4yr
10
Imports have risen less
Especially in the Eurozone’s periphery
Import of goods and services
 Relatively slow growth in
Volume index, SA, trough = 100
140
domestic demand has
restrained the recovery in
130
imports…
120
 …notably in Southern
Europe, where imports have
110
been falling since 2011
100
90
-2yr
-1yr
0
+1yr
+2yr
+3yr
+4yr
70
11
Re-exports have quadrupled in volume
E
X
P
O
R
T
S
500 Domestically-produced
500 Re-exports
400
400
300
CAGR '96-'12: 4.8%
400
300
9.3%
200
200
100
100
100
1.9%
0
0
6.4%
300
200
96 '98 '00 '02 '04 '06 '08 '10 '12
I
M
P
O
R
T
S
500 Services
10.3%
4.4%
0
96 '98 '00 '02 '04 '06 '08 '10 '12
500 For domestic use
500 Goods to be re-exported
400
400
96 '98 '00 '02 '04 '06 '08 '10 '12
500 Services
10.1%
300
CAGR '96-'12: 4.7%
300
400
9.4%
6.0%
300
200
200
200
100
100
100
0
0
3.8%
2.5%
0
96 '98 '00 '02 '04 '06 '08 '10 '12
Current prices, index (1996 = 100, SA)
Source: CBS, ING calculations
96 '98 '00 '02 '04 '06 '08 '10 '12
96 '98 '00 '02 '04 '06 '08 '10 '12
Constant 2005 prices, index (1996 = 100), SA
12
Trade in value added terms smoothes the picture
Germany and China look less important due to re-exports and the supply chain
Trade balance in value added 2009*, % of GDP
5%
Showing Dutch role
Higher VA content
as a supplier for
from trade partners
German exports
China
4%
3%
2%
1%
Top 10 Trade deficit
0%
Top 10 Trade surplus
-1%
Effect of Dutch VA
-2%
in other countries’
-3%
exports to US
Trade Balance Value Added
China
Japan
United States
Rest of the World
Malaysia
Thailand
Norway
Hong Kong
Luxembourg
Czech Republic
Singapore
Saudi Arabia
Denmark
Greece
Belgium
Spain
Italy
United Kingdom
France
Germany
-4%
Trade Balance
* Latest year available
Source: trade balance data was derived from CBS, whereas value added trade balance was computed using ratios (VA - gross trade balance) from OECD database
13
Exports to Europe are growing relatively slowly
Export growth (goods) in constant prices, YoY, 2002 = 100
Region
300
Oceania
• Exports to Asia and
Africa have more
250
Africa
than doubled in the
last decade...
200
Asia
150
100
America
• …while exports to
World
Europe have only
Europe
risen by 1/3
50
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Source: CBS, ING calculations
14
EM share of Dutch exports is still small…
Exports to emerging markets by country
 Emerging markets are
% GDP and % share (2012)
16%
14%
exports to emerging markets, %GDP
relatively less important for
Belgium
Incl. re-exports
Dutch exports…
Netherlands
Incl. re-exports
12%
 …but for our major trading
Germany
10%
partners these markets
Finland
Austria
account for a larger share of
Switzerland
8%
Netherlands excl.
re-exports
6%
Average of countries
Sweden
Denmark
Italy
Greece
Dutch exposure to EM via
France
Ireland
Portugal
4%
their exports, adding to the
Spain
indirect exports
United Kingdom
Norway
2%
 Adjusting for re-exports
Canada
shows less EM exposure
0%
0%
10%
20%
30%
40%
% share emerging markets in total exports
Source: UNCTAD, ING calculation
Emerging markets is a sum of exports to Emerging Asia (excl. S.Korea, Singapore), Emerging Europe and Latin America
15
…so there still may be a lot to gain
Low export share of fast growing countries shows the growth potential
Share in Dutch exports*
160
GDP (Q108 = 100)
CHN
2%
IND
½%
POL
2%
TUR
1%
BRA
½%
150
140
130
120
110
US
JPN
100
EZ
70%
UK
90
'07
'08
'09
'10
'11
* Shares based on gross export values in 2012-2013
'12
'13
16
Exports and imports have similar structure
Share* (%)
2012
Breakdown Dutch exports
'96
'00
'04
'08
CAGR* (%)
2002-2012
Share* (%)
2012
Breakdown Dutch imports
CAGR* (%)
2002-2012
20%
3%
21%
2%
15%
4%
20%
4%
6%
5%
10%
2%
8%
2%
9%
1%
15%
2%
10%
2%
13%
2%
7%
5%
22%
5%
24%
5%
'96
'12
'00
'04
Agrifood
Oil, mineral fuels
Chemicals
Tech. products
Other goods
Services
'08
'12
Mfg goods by material
Source: CBS, ING calculation
* The development of the shares ‘96-’12 and the CAGR are based on € and constant 1996 prices.
Shares 2012 are based on current prices in 2012
17
Largest contribution to surplus from agrifood
Trade balance by sector and product group
average '08-'12 (% of GDP)
6%
Trade balance by product / services
% GDP

The agrifood sector makes the
highest contribution to the
Dutch trade surplus, but the
tech and chemical industries
(which show healthy export
growth) also run large trade
balance surpluses

Although the tech industry
itself has a high surplus, tech
products are imported by
other sectors (businesses and
households) and so the
surplus in tech products is
much smaller that of the
sector
6%
Trade balance by sector
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
-2%
-2%
Agrifood
Chemical
Industry
Technological
industry
Man. Industry
by material
Mining, oil,
mineral fuels
industry
Services
Note: the sum of the sector surpluses amount to appr. 13.5% of GDP. Household consumption
accounts for a large deficit, bringing the total trade balance to +/- 7% of GDP
Source: CBS, ING calculations
18
Latest export trends Netherlands by products
Export growth (goods) in constant prices, YoY, 2002 = 100
180
160
Product
Share* in % (2012)
Other goods
8%
Tech. prod.
28%
Oil & mineral fuels
19%
140
Total products
120
Agrifood
17%
Chemicals
18%
Man.gds by material
10%
100
80
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Source: CBS, ING calculations. * Shares are based on current prices
19
Dutch SME’s are important in international trade…
Share of region in exports by firm size
3%
4%
5%
4%
4%
4%
4%
2%
9%
4%
7%
Country/region
Rest of W.
Africa
Share of region in imports by firm size
4%
2%
3%
4%
11%
Rest Asia
BRIC
17%
14%
4%
United States
Rest Europa
6%
3%
18%
7%
8%
77%
70%
EU
61%
43%
SME
Large
SME
Source: CBS, ING calculation. Shares are computed using 2011 nominal values of exports and imports to the regions and countries
Large
20
…more important than in some other countries
20%

36%
Export=
67% SME
SME’s account for 2/3 of
Dutch exports
Export=
37% SME

EU is, however, main
64%
destination
80%

In other EU nations, SMEs
account for much less than
35%
half of exports
37%
Export=
41% SME
Export=
41% SME
65%

Over 99% of firms are SME
63%
(up to 250 FTEs)
Share of EU in export by SME
Based on 2010 figures
Source: Eurostat, ING calculation
Share of non-EU in export by SME
21
This time is no different
SME’s in the lead again
Development of foreign sales by firm size
% growth, current prices
3%
SMEs
Large companies
2%
1%
0%
2012
Source: EIM/ING calculations
2013
22
Surge in net export also driven by weak demand
Consumers and firms currently spend some €5bn less per quarter than in Q209
25
Development of Dutch GDP components
20
Change since trough (Q209), in €bn, constant prices, SA
export
15
6
10
5
0
4
25
5
'09 '10 '11 '12 '13
20
3
re-export
import
15
10
2
5
0
1
'09 '10 '11 '12 '13
Net exports have increased steadily…
0
…while government spending initially
held up, but then austerity kicked in…
-1
-2
…which, together with housing and
pension worries, hit consumption…
-3
-4
2009
…but also firms’ capital spending
2010
Source: CBS, ING calculations
2011
2012
2013
23
Export-led recovery in the Netherlands…
Contribution to change in Dutch GDP since trough (Q209)
In €bn, annualized, constant prices, SA
650
export
625
import
Re-exports
66
600
59
575
16
gov't
31
550
cons.
12
525
investm.*
537
542
GDP
2Q.09
GDP
2Q.13
500
+0.8%p
Source: CBS, ING calculations. * Including change in inventories
24
…with re-exports of chemicals/machines in the lead
Contribution to increase in Dutch exports Q209 – Q213
in €bn, current prices
100
by type of exports
90
Other goods & services
80
Transport equipment
Machinery
70
60
by destination
Services
90
Other
Latam
80
Rest of Europe
70
Asia (excl china)
60
(Base) metals
Food
Financial services
100
Re-exports
50
50
Chemicals & fuels
40
40
30
30
20
Electrical/optical
equipment
10
20
Domestically-produced
0
10
0
Source: CBS, ING calculations
25
Exports set to accelerate…
The US and European economies are likely to shift into higher gear next year
Netherlands (Exports)
Poland
13.7
12.0
6.2
11,6
4,0
3,2
2,9
4,6
-1.5
-0.6
-7,7
Imports of goods & services
(volume, in % yoy)
2009
2010
2011
-14.3
2009
2012 2013F 2014F
2010
2011
2012 2013F 2014F
Germany
UK
12,5
3,1
7,9
2,5
0,3
7,5
7,4
2,1
4,6
-7,8
-10,7
2009
1,4
2010
2011
2012
2009
2013F 2014F
Belgium
2010
2011
2012 2013F 2014F
Italy
7,5
6,8
1,3
12,6
3,5
0,8
0,7
-0,2
-8,8
-7,4
-13,4
2009
2010
2011
2009
Portugal
8,0
1,2
-5,3
-0,1
-6,1
-10,0
-5,7
2011
3,9
-1,1
-9,5
2009
2012 2013F 2014F
2009
2012 2013F 2014F
0,6
5,3
-0,8
-17,2
2010
2011
8,6
3,5
9,3
1,8
2010
France
Spain
2009
-3,8
2012 2013F 2014F
2010
2011
2010
2011
2012 2013F 2014F
2012 2013F 2014F
26
…leading to a record current account surplus
As trading partners recover more quickly, growth in exports outpaces imports
Exports continue to outstrip imports…
Volume, % yoy
…leading to a record high surplus
Current account surplus (in % of GDP)
11%
Source: Statistics Netherlands (CBS), ING forecasts
Source: Statistics Netherlands (CBS), ING forecasts
27
But isn’t this “too much of a good thing”?
Shouldn’t Dutch companies invest more in their home market?
Sectoral balances % of GDP
15
 The counterpart of the rising
Current account balance
current account surplus is
rising corporate savings…
10
 …Dutch companies are
5
reluctant to invest at home
 On the back of ICT
0
developments, liberalization
and the introduction of the
-5
euro, Dutch companies
dramatically increased their
-10
1980
1985
1990
1995
2000
2005
2010
Government
Non-financial companies
Households
Financial companies
foreign investment
28
Foreigners seem to think so…
Germany under US attack and the European Commission starts investigation
Macroeconomic imbalance – current account (% GDP)
EU threshold =6%*
Source: ING
*Specified in the Macroeconomic Imbalance Procedure (based on 3 year backward moving average of the current account balance (% GDP)
29
Emerging markets…racy but risky
Low
10
Germany
20
France
Belgium
Taiwan
United Kingdom
Japan
Czech Republic
30
Poland
Spain
South Korea
Malaysia
Italy
40
South Africa
Brazil
China
Mexico
50
Thailand
Turkey
Vietnam
Egypt
Russia
High
Operational risks (EIU)
Singapore
United States
India
60
Size of bubbles reflects
total imports 2012
0%
Source: Unctad, ING calculations
Indonesia
Argentina
5%
10%
15%
Expected import growth 2013-2017
20%
Operational risks include threats ranging from security to finance and politics. Source: EIU, ING
30
How vulnerable to an EM slowdown?
EM share in exports is limited but impact on specific sectors can be significant
Share of Dutch exports to emerging markets in % of total exports
20%
Direct exports
 Emerging market share of
Indirect exports
15%
total exports amounted to
10%
16% in 2012 (18% including
5%
indirect exports )
0%
Emerging Europe
Emerging Asia
Latin America
Total emerging
markets
Share of Dutch exports to EM by product (incl. indirect exports)
30%
Emerging Europe
Emerging Asia
 By type of goods the
exposure is highest for
Latin America
25%
Average
20%
15%
technological prod.(24%) and
manufactured goods (21%)
10%
5%
0%
Technological Mgf. goods by
prod.
mat.
Source: CBS, VU, ING
Chemicals
Agrifood
Other goods
Oil & mineral
fuels
31
A new dawn in Europe?
Above average growth rates in Southern Europe if restructuring is successful
Growth potential after fiscal consolidation and
structural reform
Share in Dutch exports (Average 2010-2012, in %)
Agri-food
Oil, mineral. Fuels
Chemicals
Manuf.
goods
Tech.
products
5.0%
3.2%
5.5%
4.3%
4.7%
3.1%
1.0%
3.6%
2.8%
3.3%
1.2%
0.1%
0.6%
0.4%
0.5%
0.6%
0.2%
0.8%
0.7%
0.8%
(Potential real GDP growth 2020/2030, in %)
Source: CBS, ING
Source: OECD, ING
32
Structural decline of tariffs…
World average tariff
GATT signed
1967
Kennedy
Round ends
1979
Tokyo
Round
ends
1995
Uruguay
Round ends,
WTO born
2001
Doha
Round
begins
Many regional trade
agreements signed
Source: RTAs, WTO, Ecorys
33
5B
Transatlantic Trade and Investment Partnership
New opportunities with the US?
• Reduced tariffs boost competition and trade
• Particularly in agricultural products, textiles and
Reduce Tariffs to clothing and footwear (tariffs on shoes as high
as 66% in the US1)
encourage Trade
in Goods
Proportion of trade between US and EU
has decreased…
19%
Exports to the EU as proportion of total US
exports
18%
Exports to the US as proportion of total
Eurozone exports
17%
16%
15%
14%
Harmonise
regulation and
industry standards
• e.g. Joint car safety and drug registration
regulations would prevent double tests in the
US and EU.
13%
12%
11%
2000
2002
2004
2006
2008
2010
2012
Estimated increase in EU GDP from TTIP
Comprehensive
(Ambitious)
Relax “Buy
America”
procurement rules
• Currently only 32% of US Federal procurement
market is open to EU businesses.
Comprehensive
(Conservative)
Tariff-only
Procurement-only
Services-only
1 Source:
BBC
0.0%
0.2%
Source: European Commission
0.4%
0.6%
34
34
TTIP a boost to trade
Although some sectors will lose out
Transatlantic Trade and Investment Partnership (TTIP)
Tariff liberalisation
NTM, complete liberalisation
Long run impact (%)
2.0%
2.0%
Dutch exports
general boost to trade with the
Dutch imports
1.5%
 Free trade negotiations will give a
1.5%
US…
 …some sectors will gain, eg
1.0%
1.0%
chemicals, while others will lose
out, eg electrical machinery
0.5%
0.0%
Source: BBC, Bloomberg, Ecorys, Study on “EU-US High Level Working Group”
0.5%
 Cheap US gas is a competitive
threat
0.0%
35
US energy revolution
Natural gas price differentials
 Cheap US gas is a
competitive threat to energy
and chemicals sectors
36
Conclusions
 The Dutch economy is extremely competitive, with a high and rising trade surplus
 Exports have led the economy’s recovery, with the SMEs leading the way
 The Netherlands is particularly successful in Europe…
 …agrifood and chemicals account for much of the country’s surplus
 Nevertheless, the Netherlands faces some challenges
 Export growth is dominated by re-exports, not domestically produced exports
 Low market share in rapidly growing Asian markets
 The rising trade surplus also reflects weak domestic demand, which is holding down imports
 A record current surplus of 11% will fuel foreign criticism
 Weak domestic investment poses a longer term challenge to competitiveness and exports
 Longer term opportunities lie in emerging markets, but recent setbacks show the risks
 Traditional markets like the UK, US and even the Eurozone periphery offer shorter term
possibilities
37
Colophon
ING Economics Department
Mark Cliffe – ING Group Chief Economist
Maarten Leen – Head of Macro Research
Dimitry Fleming – Senior Economist, Netherlands
Jurjen Witteveen – Senior Economist, Manufacturing Sector
Rob Ruhl – Head of Business Economics
Mohammed Nassiri – Research Assistant, International Trade Research
38
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