Dutch Economy Chart Book

ING Economics Department

Solid growth and no sign of overheating yet

Amsterdam • January 2017

2

Contents

1. Outlook summary

2. Forecast table

3. GDP

4. Exports

5. Non-financial businesses

6. Consumers

7. Labour market

8. Inflation

9. Housing market

10. Government

11. Sources

3

4

8

18

26

35

44

48

58

5

66

The Dutch economy has continued to steam ahead. Despite stagnating world trade growth and Brexit uncertainty, GDP rose a hefty 0.8%QoQ in the

third quarter (0.7% in Q1 and Q2). After 2% growth in 2015, the economy is on track for even slightly higher growth in 2016, thereby again outpacing

the Eurozone average. Since the trough of 2013, the economy has expanded by about 6.5%. The pick-up of the housing market explains at least a

quarter of this recovery.

Next year, economic growth is forecast by ING to slow a bit, from 2.2% in 2016 to 1.6% in 2017. Excluding the leap-year effect, the slowdown is less

pronounced (2.1% to 1.7%). Housing remains an important growth engine, but it will shift a gear down. Furthermore, the export growth engine could

start to cough a little in 2017. The main Dutch export markets show little vigour. Moreover, the maximum allowed gas production will again be lowered.

Profits of non-financial businesses are rising and the number of bankruptcies is falling towards pre-crisis levels. With business investment back at 2008

levels, the pace of investment growth is likely to decelerate.

While the housing market and exports throttle back a bit, households are set to increase their spending at a faster pace. Confidence is at its highest

since 2007. This will help consumers to start spending more of their increased income.

Government finances are improving rapidly. A balanced budget is within sight. Debt drops below the 60% target. The international appeal for increased

government spending is unlikely to be met by the Dutch.

Despite solid growth rates, the economy is not yet running at full potential. Not all sectors have recovered to 2008 levels. Unemployment is falling

rapidly, but there is still slack in the labour market. The decline in the labour participation rate points to extra potential labour supply of about 300,000

people.

Inflation rises, mainly due to higher energy prices. Meanwhile, the still negative output gap keeps a lid on the rise in core inflation.

In short

3 Summary <<

ING forecast table – The Netherlands

4

* Not adjusted for working days

Forecasts as of December 23, 2016 (interest rates as of December 12, 2016)

per cent change unless otherwise noted 2011 2012 2013 2014 2015 2016 2017 2018

Demand and output*

Gross domestic product 1.7 -1.1 -0.2 1.4 2.0 2.2 1.6 1.9

Private consumption 0.2 -1.2 -1.0 0.3 1.8 1.7 1.9 1.9

Government spending -0.2 -1.3 -0.1 0.3 0.2 0.9 0.6 1.0

Investment 5.6 -6.3 -4.2 2.3 9.9 6.3 2.5 3.2

of which private 7.7 -6.2 -4.6 3.4 11.6 7.4 2.6 3.6

Net exports (%-point contribution to GDP) 1.0 1.1 1.0 0.7 0.0 0.1 -0.1 0.1

Labour and housing market

Employment (in hours worked) 1.0 -0.9 -0.9 0.5 0.5 1.6 1.2 1.1

Unemployment (% of labour force) 5.0 5.8 7.3 7.4 6.9 6.0 5.2 4.9

House prices -2.4 -6.5 -6.6 0.9 2.8 5.0 4.6 3.1

Existing home sales (in 000s) 121 117 110 154 178 212 223 230

Government finances

Government budget (% of GDP) -4.3 -3.9 -2.4 -2.3 -1.9 -0.5 0.0 0.3

Government debt (% of GDP) 61.6 66.4 67.7 67.9 65.1 62.7 59.9 58.0

Prices and rates

Inflation (HICP) 2.5 2.8 2.6 0.3 0.2 0.1 0.8 1.3

Euribor, 3 month (% eop) 1.4 0.2 0.3 0.0 0.0 -0.3 -0.3 -0.2

Dutch gov't bond yield, 10yr (% eop) 2.2 1.5 2.2 0.0 0.0 0.5 0.8 1.1

Forecasts <<

-10

-5

0

5

10

15

2011 2013 2015 2017

5

Dutch economy continues to outpace Euro area ‘core’

From growth laggard to leader

Gross domestic product, volume, change year-on-year, in %

-2

-1

0

1

2

3

2012 2013 2014 2015 2016 2017 2018

Nederland Duitsland België Frankrijk

Including negative gas effect on growth (-0.4ppt)

The drag from weak housing …and austerity has faded

In 000s Budget effect, in € billions

0

50

100

150

200

250

2008 2012 2016

BelgiumThe Netherlands

FranceGermany

Existing home sales New policy measures

‘Old’ measures (from prev yrs)

Total

GDP <<

70

75

80

85

90

95

100

105

1996 2000 2004 2008 2012 2016

6

Domestic demand is driving growth

Strong growth trend in GDP per capita

Index, 2008 = 100

Domestic demand has taken over as main growth engine

Contribution to GDP growth, in percent points

GDP per capita

-6

-3

0

3

2008 2010 2012 2014 2016 2018

Private consumption Government

Private investment (incl. stocks) Exports (net)

forecast

GDP <<

-4

0

4

8

7

Growth is above trend, but output gap is not yet closed

Output gap is still slightly negative, which means the economy is not running at full potential

Change year-on-year, in % (lhs) Difference between actual and potential GDP level, in % of potential GDP (rhs)

Actual GDP growth

Change in potential GDP

-4

0

4

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Positive output gap

Negative output gap

forecast

GDP <<

Exports

8

Despite stagnating world trade growth, the volume of Dutch exports has continued to increase in recent quarters. The weakness in

world trade is largely driven by emerging markets, but the Netherlands is heavily focused on developed markets.

Re-exports have posted the strongest growth, but exports of domestically-produced goods have expanded too. Strong order positions

point to further growth in the coming months.

During 2017, the export growth engine could start to cough a little. The main Dutch exports markets show little vigour. In value added

terms, the UK accounts for 8% of Dutch exports. So, a slowdown of the British economy – or possibly a short-lived contraction in the

first half of 2017 – will not go unnoticed. Meanwhile, growth in the euro area (almost half of Dutch exports) is expected to be lower

than in 2016. Higher growth in the US (also 8% of Dutch exports) could bring some compensation, but it will probably not be enough to

offset the weakness in European markets.

Additional pressure on Dutch exports comes from the government’s decision to further lower the maximum allowed gas production in

the Northern Province Groningen. Unless 2017 turns out to be a very hot year, the 10% reduction in production leaves less gas for

foreign markets.

Although in volume terms Dutch exports have increased, the value of exports has been stable since late 2012. This is largely the result

of the fall in commodity prices. Dutch exports of energy products has declined by roughly 50%. Meanwhile, exports of high-tech

products has surged.

The decline in oil prices has pushed down the current account surplus from record high levels. Internationally, the surplus remains high.

Exports <<

9

Main trading partners of the Netherlands (2015)

Goods (2015):

383 bn euro

17%

10%

9%

9%

6%

4%

4%

3%

2%

2%

ImportsShare, turnover

Goods (2015):

427 bn euro

23%

10%

9%

8%

4%

4%

3%

2%

2%

2%

Exports Share based on turnover Share based on value added

17%

8%

8%

7%

5%

5%

4%

2%

2%

2%

Exports <<

10

Almost €600 billion of Dutch exports in 2015

78 57 79 76 135 160

agri energy chemicals low/mid-tech high-tech

Goods (73%) Services (27%)

Mostly goods, but over a quarter now consists of services

In billions of euro

Agri exports are dominated by domestically produced goods, high-tech is mostly re-exports

Share of domestically produced goods in exports, per category

Exports <<

0

5

10

15

20

25

30

35

40

2002 2004 2006 2008 2010 2012 2014 2016

0

2

4

6

8

10

12

14

2002 2004 2006 2008 2010 2012 2014 2016

11

Export value stable, largely due to fall in energy exports

Lower energy exports, but strong increase in high-tech

Per month, in € billions, seasonally-adjusted

No growth in exports since late 2012

Per month, in € billions, seasonally-adjusted

Total monthly exports, goods ChemicalAgri High-tech

Energy Low-/mid-tech

Exports <<

0

5

10

15

20

25

2008 2012 2016

-8

-4

0

4

8

12

16

2004 2006 2008 2010 2012 2014 2016

12

Oil pushes current account surplus down from record high

Current account down from record level, but still high

% of GDP, seasonally-adjusted

Income: the “Shell-effect”?

% of GDP €/barrel

Trade, services

Trade, goods

Current account

Balance in transfersIncome balance Income balance

Oil price (rhs)

Trade: drop in energy exports€ billions

Exports of gas andoil products

-50%

0

20

40

60

80

100

-6

-4

-2

0

2

4

2008 2012 2016

Lower oil priceshave impactedShell’s revenues, and thus incomeon Dutch FDI

Exports <<

40

60

80

100

120

140

2000 2002 2004 2006 2008 2010 2012 2014 2016

World trade has stagnated, but Dutch exports are still rising

Index, 2010 = 100

13

In volume terms, Dutch exports have outpaced world trade

Sharp rise re-exports, but export ‘made in NL’ higher too

Index, 2014 = 100

World trade volume

Exports of goods, constant prices, Netherlands Domestically-produced exports, the Netherlands

World trade volume

Re-exports, the Netherlands

90

95

100

105

110

115

2013 2014 2015 2016

Exports <<

TransportWholesale

0

2

4

6

Ireland Malta NL Belgium Germany

14

Risk: if Brexit fears materialize, NL will be hit relatively hard

Sensitivity to UK: NL ranks third within EU

% of total added value dependant on demand from UK

EU average

Dutch sectors that are most exposed to the UK

Business services

Industry

Exports <<

-15

-10

-5

0

5

10

15

1996 2000 2004 2008 2012 201620

30

40

50

60

70

2000 2002 2004 2006 2008 2010 2012 2014 2016

15

For now, exporters are still positive on outlook

Industrial export order books are filling up

Index

Base case: steady growth in main export markets

Change year-on-year, constant prices, in %

NEVI/Purchasing Managers' Index – export orders

Industrial production in main Dutch export markets*

Merchandise exports, the Netherlands

forecast

Long term average

* Proxied by Eurozone, UK, US and China. Share in Dutch exports used as weights

Exports <<

16

International competitive position has improved

GBP has weakened against euro, USD has strengthened

Currency per euro index, 2010 = 100

Dutch competitiveness has, on balance, improved since 2008

Index, Q1 1999 = 100

90

94

98

102

106

110

0.6

0.8

1.0

1.2

1.4

1.6

2004 2006 2008 2010 2012 2014 2016

USD per euro

Nominal trade-weighted euro, Netherlands (right)

85

90

95

100

105

110

115

2004 2006 2008 2010 2012 2014 2016

ECB Harmonized Competitiveness Index, based on CPI

ECB Harmonized Competitiveness Index, based on unit labour cost

GBP per euro

Exports <<

17

A very competitive economy: Dutch are ranking high

WEF Global competitiveness Index

Global Innovation Index

Network Readiness

Global Enabling Trade Report

Logistics Performance Index

Ease of Doing Business

Corruption Perceptions

Human Development

Prosperity Index

Position in 2010

1 2 3 4 5 6 7 8 9 10 138

1 2 3 4 5 6 7 8 9 10 128

1 2 3 4 5 6 7 8 9 10 138

1 2 3 4 5 6 7 8 9 10 160

1 2 3 4 5 6 7 8 9 10 28 189

1 2 3 4 5 6 7 8 9 10 175

1 2 3 4 5 6 7 8 9 10 187

1 2 3 4 5 6 7 8 9 10 142

…

…

…

…

…

…

…

2016: WEF Global competiveness, Global Innovation, Logistics Performance Index, Ease of Doing Business, Network Readiness2015: Corruption Perceptions, Human Development, Prosperity Index2014: Global Enabling Trade Report 2014

1 2 3 4 5 6 7 8 9 10 139…

Exports <<

Non-financial businesses

18

In 2016, all major market sectors, barring automotive and gas extraction, increased their production levels. In 2017, the market

sector is forecast to further increase output.

Most sectors have recovered to pre-crisis levels. Main exception is the construction sector, which is still some 8% smaller than in 2008.

In terms of value added, hospitality has also not fully recovered. The gas sector (-30%) was hit by the decision to lower the maximum

allowed production in 2015 (in ‘gas year’ 2016-2017, the production will be lowered further).

The financial situation of companies is improving. Profits are rising and the number of corporate bankruptcies is falling back rapidly

towards levels last seen in 2008. Indicators show that the economic recovery is gaining a firm foothold among SMEs. Smaller firms

now also report, on balance, higher profitability.

Investment levels have increased strongly in recent years. Private investment excluding dwellings (as a percentage of GDP) is above

the long-term average. Including dwellings, the investment level is still significantly below previous peaks.

The combination of higher output levels and rising profits induces companies to continue to step up investment, but at a slower pace

than in previous years. Spending on vehicles and machines once again equals the 2008 level, while ICT-related investment is even

some 20% higher. Investment growth in the commercial services sectors has started to normalize.

After a sharp drop in 2008-2013, residential construction rebounded very strongly; in 2015, by almost 30% and in 2016 by a near

20%. This year, residential investment is expected to increase further, but the pace of growth is set to slow to around 10%.

Business <<

2005 2010 2015

60

70

80

90

100

110

120

130

2005 2010 2015

19

Most, but not all, sectors have recovered to 2008 levels

Goods-producing sectors: mixed picture

Output, index, 2008 = 100

60

70

80

90

100

110

120

130

2005 2010 2015

Mining/gasAgriculture

ConstructionManufacturing

Gov’t lowers maximum allowed gas production

Wholesale*Real estate ICT

Wholesale Other Retail*

Hospitality

Commercial services: trending up Public services: stable

Education*Government*

Health care* Culture, sport & recreation*

* No quarterly data available

Business <<

34

36

38

40

42

44

46

2000 2005 2010 2015

0

60

120

180

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

20

Higher profits for non-financial companies

In euros, profits from domestic activity are back at pre-crisis levels

4Q sum, in euro billions

Gross operating surplus, domestic activity

Profits of foreign affiliates of Dutch non-financial companies

Profit quote is still below 2008 level

Gross operating surplus as percentage of gross value added

Profit quote, non-financial companies

Business <<

60

70

80

90

100

110

120

2010 2011 2012 2013 2014 2015 2016

-40

-30

-20

-10

0

10

20

2009 2010 2011 2012 2013 2014 2015 2016

21

Recovery is filtering through to smaller firms

SMEs: more confidence and improved finances

Net % of firms reporting improvement (+) or deterioration (-)

Positive trend in profitability

Net % of firms reporting higher (+) or lower (-) profitability in last 3 months

ING Sentiment Index for SMEs (ING OndernemersIndex) 5 up to 20 employees

20 up to 50 employees

50 up to 100 employees

100 or more employeesFinancial situation in last 12 months

Business <<

22

Fewer bankruptcies

Number of bankruptcies heading towards pre-crisis levels

Actual numbers, seasonally-adjusted

Declines in all sectors

Bankruptcies per month, 6M moving average

0

200

400

600

800

1000

2000 2004 2008 2012 2016

Bankruptcies per month

Small uptick due to retail(V&D, Macintosh, USG, DA, Schoenenreus, etc.)

0

100

200

300

0

50

100

150

200

2006 2008 2010 2012 2014 2016

ConstructionComm services (right) Trade

Industry Transport Hospitality

Public services (incl health)

Business <<

5

10

15

20

25

1996 2000 2004 2008 2012 201660

80

100

120

140

2008 2009 2010 2011 2012 2013 2014 2015 2016

23

Business investment has recovered, construction not yet

Investment rate is below pre-crisis peaks...

As % of GDP

Private investment, excluding dwellings

Total investment (private + public)

Transport vehicles and machines

Dwellings and other buildings (including roads, waterways, etc.)

Software, computers and R&D

…due to dwellings, while ICT investments show steady uptrend

Index, 2008 = 100

Business <<

-30

-20

-10

0

10

20

30

1997 2002 2007 2012 2017

-20

-15

-10

-5

0

5

10

15

20

-60

-40

-20

0

20

40

60

2001 2006 2011 2016

0

2

4

6

8

10

2000 2004 2008 2012 2016

24

Further investment growth, but at slower rate

Industry expects to invest more… …but need for extra capacity has eased

% of firms Change year-on-year, in %

Growth in comm. services normalizes

Index, dev. from LT-average Change YoY, in %

Expected increase in investment

Actual

Factors Limiting Production, shortage of materials & equipment

Business confidence (left)

Investment volume (right)

Business <<

-100

-50

0

50

100

2008 2009 2010 2011 2012 2013 2014 2015 2016

-100

-50

0

50

100

2008 2009 2010 2011 2012 2013 2014 2015 2016

Credit demand from SMEs is also picking up

Net percentage of banks reporting stronger (+) or weaker (-) demand

Large firms

SMEs

25

Stronger demand for bank credit

Credit standards have been eased slightly for large firms

Net percentage of banks reporting tighter (+) or eased (-) standards

Large firms

SMEs

easing

tightening

weaker

stronger

Business <<

Consumers

26

Spending power has risen strongly in the past two years, helped by more jobs, higher wages, near-zero inflation and tax cuts.

However, households did not react by boosting their spending at an equal rate. A significant share of the income increase was put

aside or used to pay down on mortgages.

Debt is still rising, but at a much lower rate than previously. Households are deleveraging the ‘soft’ way (also see slide 57).

With confidence now the highest since 2007, this is changing. Households are stepping up their spending pace. In the third quarter

of 2016, spending by households was even the main driver of GDP growth.

Spending on both goods and services is rising. Within the goods category, electronics are the standout. In line with the recovery in

home sales, housing-related spending is also picking up. The recovery in clothing and cars has remained muted.

Consumers are above-average optimistic about the general economic climate and willingness-to-buy is now also above the long-

term average. The increase in confidence is largely driven by younger people.

Consumers <<

-50

-25

0

25

50

2008 2010 2012 2014 2016

-3

-2

-1

0

1

2

3

2000 2004 2008 2012 2016

Especially younger people are full of confidence

Consumer confidence, index

18-45 years

All ages

27

Consumers shake off bad news

Consumer confidence highest in 9 years

Standardized index

Economic climate

Consumer confidence index

Willingness to buy 65+

Consumers <<

-2

0

2

4

6

2000 2004 2008 2012 2016

forecast

85

90

95

100

105

110

115

2004 2006 2008 2010 2012 2014 2016

28

More spending power

Increase in overnight deposits points to higher spending

Inflation-adjusted index, 2010 = 100

Non-food retail sales, excluding fuel

Overnight deposits, total balance of households (5M lead)

After 4 yrs of decline, 4 yrs of higher purchasing power

Change year on year, in %

Dynamic (adjusted for changes in type of income)

Static

Consumers <<

57

15

17

11

Services Food, beverages & tobacco

Durable goods Energy/fuel

€300 bn(100%)

90

95

100

105

2008 2010 2012 2014 2016

Breakdown of consumer spending, 2015

% of total

29

Private consumption growth is gaining traction

Increased spending on both goods and services

Private consumption by type, volume index, 2008 = 100

Goods

Total

Services

clothing

furniture

electronics

vehicles

otherhousing

hospitality & recreation

transport & comm.

health

financialother

gas & water

fuel

alcohol & tobacco

food

Consumers <<

80

100

120

140

2008 2010 2012 2014 2016

30

Consumer spending trends

Services: more on housing and health

Index, constant prices, 2008 = 100

Housing

Health

Electronics surge, energy trending down

Hospitality & recreation

Financial

Durables: cyclically-driven pick-up

90

100

110

120

130

2008 2010 2012 2014 2016

Food

Electronics

Energy & fuel

60

70

80

90

100

110

2008 2010 2012 2014 2016

Vehicles

Clothing

Housing-related

Consumers <<

0

20

40

60

80

100

120

140

160

2008 2010 2012 2014 2016

-10

-5

0

5

10

15

20

2011 2012 2013 2014 2015

31

More and more online

Number of web shops up, traditional stores down

In thousands

Traditional shops

Double-digit rise in online sales volumes

Retail sales volume, change year-on-year, in %

Non-food (excl webshops)

Food

Post order/webshops

Web shops

-3k

+27k

Change since 2008

Consumers <<

-4

-2

0

2

4

6

8

10

2000 2005 2010 2015200

220

240

260

280

300

320

340

2000 2005 2010 2015

32

Income has increased faster than spending

…pushing ‘free’ savings rate back into positive territory

% of disposable income

Free savings (income less spending)

Households are not spending full increase in income…

In billions of euros

Consumer spending

Total household disposable income

Mandatory savings (pension premiums less payouts)

Income > spending= higher saving rate

Positivesaving rate= increasein wealth

forecast

Consumers <<

-60

-30

0

30

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

33

Households are taking up much less debt

Change in financial assets, excluding pensions (i.e. bank accounts, stocks, bonds, etc.)

For a long period, debt increased much faster than liquid assets, but that has changed

In billions of euros

Change in debt (mostly mortgages)

Change in wealth (excluding pensions), adjusted for price effects*

* Line shows changes in wealth due to financial transactions

Consumers <<

0

500

1000

1500

2000

2500

3000

3500

2000 2005 2010 2015

-1000

-500

0

500

1000

1500

2000

2001 2003 2005 2007 2009 2011 2013 2015

34

Total net wealth increased further during crisis

Non-financial wealth (mostly dwellings and land)

Increase in pension assets has offset temporary decline in housing wealth

In billions of euros

Pension assets

Total net wealth(financial and non-financial)

Other financial assets

Debt

Total net wealth at record high

In billions of euros

Consumers <<

Labour market

35

Employment growth has accelerated in recent quarters. The number of jobs is now higher than it was when the crisis hit the economy

in 2008. In terms of total hours worked, the recovery has been slightly less strong.

Leading indicators point to further growth. The number of unfilled vacancies is the highest since early 2009.

Sector-wise, temporary job agencies have been the driving force behind the increase in jobs. This reflects the strong rise of flex

workers in the workforce.

The drag from the public sector (incl health) on the labour market – the result of austerity – has come to an end.

The unemployment rate is falling rapidly and is now below the long-term average. All age groups show a decline.

Despite the strong improvement, there is no sign of overheating. Wage growth is moderate and there is more slack in the labour

market than unemployment data suggest.

Since the start of the crisis, the gross participation rate has declined from 71% to 70%. Before the crisis, there was a very strong

uptrend. In addition to the near 500k unemployed, there appears to be potential labour supply of about 300k men and women.

The decline in labour market participation has been strongest amongst males of 25 to 45 years old.

Labour <<

36

Employment is rising

Number of jobs above pre-crisis level, total hours worked back at par

Millions

Total employment, number of employees and self-employed people (left axis)

Employment in total hours worked (right axis)

4

15

8

2614

32

311

7

24

19

36

Comm. Services +5%Financial, IT, advice (legal/mgt./tech), temp job agencies

Public +4%-pointHealth, government,education

Agriculture -1%Farming, forestry, fishing

Industry (inc. energy) -4%Food, metal, chemical, machinery

Trade -2%Retail (incl auto), wholesale, hospitality

Construction -1%

1995 vs 2015: more jobs in services

Share in total employment, in %

19952015

11.8

12.0

12.2

12.4

12.6

12.8

13.0

9.0

9.2

9.4

9.6

9.8

10.0

10.2

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Th

ou

san

ds

Labour <<

-4

-2

0

2

4

2008 2010 2012 2014 2016

-0.8

-0.4

0.0

0.4

0.8

2014 2015 2016

37

More work, mostly flex

Number of fixed and flexible contracts is increasing

Contribution to quarterly change in labour force, in percentage points

Job growth driven by commercial services

Contribution to yearly change in employment, in percentage points

Total employed labour force

Employee, flex

Employee, fixed Self-employed w/o pers. (“zzp”)

Other (e.g. self-employedwith employees

IndustryPublic Construction

Trade/transport Temp agencies

Other sectors (e.g. business services, IT, finance, real estate)

Labour <<

-9

-6

-3

0

3

6

-3

-2

-1

0

1

2

2006 2009 2012 2015

-2

-1

0

1

2

3-3

-2

-1

0

1

2

1995 1998 2001 2004 2007 2010 2013 2016

Leading indicators point to further job growth

Consumers and firms have positive expectations

Index, standardized

Vacancies and temp hours are still rising

Index Quarterly change, in %

Consumers’ unemployment expectations (right axis, inverted)

Businesses’ employment expectations* Vacancy indicator (left)

Temp hours worked, phase A* (right)

38

* Weighted average of manufacturing, construction, retail and services * Phase A refers to the period up to 78 weeks. It is the most flexible. ‘No work, no pay’

Labour <<

0

2

4

6

8

10

1980 1985 1990 1995 2000 2005 2010 20150

4

8

12

16

2006 2008 2010 2012 2014 2016

39

Steady drop in unemployment

Unemployment has fallen and is still above LT-average

As percentage of labour force

Lower unemployment in all age groups

Number of unemployment as percentage of labour force

Unemployment rate (harmonized)

Long-term average (1970-2015) Aged 25-45

Aged 15-25

Aged 45+

Labour <<

0

1

2

3

4

5

6

7

8

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

40

Labour market is slower getting tighter

Number of unemployed persons per open vacancy has fallen significantly, but not yet as low as in 2008

Ratio

Labour <<

0

30

60

90

2004 2008 2012 2016

0

25

50

2004 2008 2012 2016

0

10

20

2004 2008 2012 2016

0

10

20

30

2004 2008 2012 2016

0

5

10

15

2004 2008 2012 2016

0

5

10

15

2004 2008 2012 2016

41

In most sectors, labour shortage not yet as acute as in 2008

Percentage of firms reporting shortage of workers (note: charts do not have same axes)

Industry

Agri

Construction

Real estateservices

Wholesale

Transport (over land)

Retail

HospitalityIT

Legal serv.

Mgt. consult.

Temp job agencies

Rentalserv.

Marketing

Labour <<

66

68

70

72

2004 2006 2008 2010 2012 2014 2016

98

100

102

104

2009 2010 2011 2012 2013 2014 2015 2016

42

Lower labour participation points to ‘hidden’ potential supply

Potential labour force has outpaced actual labour force

Index, 2009 = 100

Since start of crisis, participation rate has, on balance, fallen

Actual labour force as percentage of potential labour force aged 15-74

Gross labour participation rate, aged 15-74

Actual labour force (aged 15-74)

Potential labour force (aged 15-74)

Reasons for withdrawal:

- Discouraged

- Study/re-training

- Care-taking

- Sick/disability

71%

70%

67%

Labour <<

74

76

78

2004 2006 2008 2010 2012 2014 2016

4.4

4.6

4.8

5.0

2004 2006 2008 2010 2012 2014 2016

Mil

lio

ns

56

60

64

68

2004 2006 2008 2010 2012 2014 2016

43

Extra potential labour supply of around 300k people

Male participation rate has dropped

Actual labour force as percentage of potential labour force aged 15-74

Strong upward trend in female participation rate stalled

Actual labour force as percentage of potential labour force aged 15-74

+150k

65%

59%

150K extra men if participation returns to 77%

Number of males active on the labour market, in millions

77%

75%

Assuming part. rate of 77%

Actual

3.4

3.9

4.4

2004 2006 2008 2010 2012 2014 2016M

illi

on

s

150K extra female if participation rose to 67%

Number of females active on the labour market, in millions

+150kAssuming part. rate of 68%

Actual

Labour <<

Inflation

44

Consumer price inflation has started to creep up in recent months, from 0% YoY in 2Q16 to 1.0% in December. In the same period, the

European, harmonized inflation measure (HICP) rose from -0.2% to 0.7%. The HICP excludes the cost of owning a home, which

currently rises faster than the average inflation.

After, on average, 0.3% in 2016, full year inflation is set to rise to just above 1% in 2017. HICP is forecast to rise from 0.1% to 1.0%.

The increase is largely due to higher commodity prices feeding through into retail prices. In addition, higher wages are slowly pushing

up services prices.

According to surveys, inflation expectations are very slowly rising, but consumers and businesses do not expect hefty increases.

Underutilization of the economy keeps a lid on the increase in core inflation. Inflation excluding food and energy is expected to

remain below 1% in 2017.

Rents, accounting for about 20% of total consumer price inflation, are linked to the previous year’s headline inflation rate. As a result,

near zero percent inflation in 2016 helps to keep the 2017 rate low.

Inflation <<

-1

0

1

2

3

4

5

2000 2005 2010 2015

-20

0

20

40

60

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

45

Inflation expectations are still muted

Inflation is creeping higher from low levels… …and consumers and business do not appear to expect a strong rise

% year-on-year Net % of respondents

Headline consumer price inflation

Companies’ selling price expectations for next 3 months

(weighed average of industry, retail and services sector

Consumer price expectations for next 12 months

Core inflation

Inflation <<

-60

-30

0

30

60

2014 2015 2016

46

Inflationary pressures are building

Commodity prices are recovering…

Change year-on-year, in %

0

1

2

3

4

2010 2012 2014 2016

…and wage costs are rising

Change year-on-year, in %

Energy

Agricultural

Raw materials

Metals & minerals

Industry

Construction

Comm. services

Non-comm. services

Catch-up after periodof wage freeze

Inflation <<

-1

0

1

2

3

4

2012 2013 2014 2015 2016 2017 2018

47

Inflation increases as negative energy effect fades

Headline inflation rises slowly

Contribution to consumer price inflation, in percentage points

rent

other

energy

Food/bev/alc

‘core’

forecast

fuel

Total CPI

Inflation <<

Housing market

48

Since the trough of 2013, the economy has expanded by about 6.5%. The pick-up of the housing market explains at least a quarter of

this recovery. Investment in dwellings has surged 70%, benefitting builders, industry and DIY stores. The number of home sales has

even doubled and is now pushing for a new record high. Estate agents, surveyors, notaries, lenders, mortgage advisors and furniture

shops reap the benefits of this.

In 2017, housing remains an important growth engine, but it will shift a gear down. The low number of new building permits is the

main bottleneck. Too few building locations, low capacity with developers and less active housing corporations will cause investment

in housing to expand at a lower rate.

With home buying activity at fresh record high levels, the number of home sales will rise less rapidly too, most certainly if mortgage

rates start to creep higher increase.

Regionally, all provinces have shown double-digit increases in home sales since the low point of 2013. Zeeland, Limburg, Groningen

and Drenthe have been lagging a bit behind. This is most likely partly due to ageing.

Unsold supply has fallen back towards pre-crisis levels. The median asking price per square metre has increased 3.5% since mid-2013.

In most regions, house prices still have ample room to increase. Prices are expected to increase on average by some 5% next year.

This still leaves valuations 8% below the peak of 2008.

Large cities remain in the lead. In Amsterdam, house prices have on average risen by 35% since the trough, leaving them over 10%

above the previous peak (2008).

Housing <<

40

60

80

100

120

140

160

180

2004 2006 2008 2010 2012 2014 2016

49

Home buying activity at record levels

Housing market sentiment has improved strongly…

Index, 2008 = 100

…pushing homes sales to record high levels

Monthly sales, seasonally-adjusted, annual rate, in thousands

Housing Market Indicator VEH (homeowners’ association)

Google searches for ‘hypotheek’ (= mortgage)

0

50

100

150

200

250

2004 2006 2008 2010 2012 2014 2016

Existing homes

New homes

Housing <<

0

2

4

6

8

10

12

14

'70 '80 '90 '00 '10

1

2

3

4

5

6

7

'05 '07 '09 '11 '13 '15

50

Affordability has improved significantly since 2008

Improved affordability, especially for repeat home buyers

After-tax mortgage cost as % of income, directly after purchase*

Mortgages have dropped to historically low levels

In %, by fixed interest duration

Mortgage rate, average all durations

Up to 1yr

1 to 5yr

5-10yr

>10yr

0

10

20

30

40

1995 2000 2005 2010 2015

Annuity mortgage

100% interest-only

Repeat home buyers

First-time home buyers

Goodaffordability

Bad affordability

* Using average house price and average household income. Since 2013, interest on new mortgages is only tax deductible for ammortising mortgages.

Housing <<

50

100

150

200

250

300

2000 2004 2008 2012 2016

51

Regionally, broad-based surge in home sales

North & east: closely together on way up

Index, 2013 = 100

South & west: ageing areas fall a bit behind

Index, 2013 = 100

Friesland

Groningen

Drenthe

Overijssel

Flevoland

Gelderland

50

100

150

200

250

300

2000 2004 2008 2012 2016

N-Holland

Utrecht

Z-Holland

Zeeland

N-Brabant

Limburg

Peak ahead of new regulation

Housing <<

0

10

20

30

40

2006 2008 2010 2012 2014 2016

Supply is becoming tighter

Unsold existing supply near pre-crisis level…

Available housing supply versus monthly rate of sales, in months

…while new supply is still historically low

Index, 2008 = 100

For sale

0

50

100

150

200

1955 1965 1975 1985 1995 2005 2015

Th

ou

san

ds

Homes for sale

Total building permits

Rental homes

52 Housing <<

Historical house price trends

In real terms, Dutch house price are still significantly below the peak

Index, adjusted for consumer price inflation, 1970 = 100

0

50

100

150

200

250

300

350

400

1927 1932 1937 1942 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 20121628

Herengrachtindex

1700 1800 1900

National house price index

-80%

-50%

-25%

53 Housing <<

70

80

90

100

110

120

2008 2010 2012 2014 2016

54

Large cities lead house price recovery

Western & southern provinces Largest cities

Friesland

Groningen

Drenthe

Overijssel

Gelderland

Flevoland

Northern & eastern provinces

Index, 2008 = 100

N-Holland

Utrecht

Z-Holland

Zeeland

Limburg

N-Brabant

2008 2010 2012 2014 2016

70

80

90

100

110

120

2008 2010 2012 2014 2016

The Hague

Amsterdam

Rotterdam

Utrecht

National average

Housing <<

Sharply lower price-to-income in NL

Price-to-income in Sweden and UK far above long-term average, NL and Denmark not so much

House price-to-income, deviation from long-term average, 1980-2016 = 100

55

40

60

80

100

120

140

160

1980 1985 1990 1995 2000 2005 2010 2015

US

UK

Sweden

Euro area

Netherlands

Denmark

Housing <<

Measures have been taken to curtail mortgage debt growth

Interest payments resulting from mortgage equity withdrawal cannot be included in the tax deduction

Intro. code of conduct (cost of living ratios, reference rate for mortgage with interest rate <10yr)

2001 2003 2005 2007

2009 2011 2013

56

Households are only allowed to deduct interest payments on the mortgage up to a maximum period of 30 years

2002 2004 2006

2008 2010 2012

Tightening code of conduct (max 50% interest-only)

2014

Interest on new mortgages only tax deductible for amortising mortgages (annuity/linear mortgage)Max loan-to-value gradually lowered from 106% to 100% in 2018

For the higher income tax bracket, tax deduction will be gradually reduced to 38% in 2042 from 52%

Housing <<

57

Mortgage debt is falling, in relative terms

Debt levels are falling as income rises and households have increased pre-payments

Mortgage debt as % of GDP

0

50

100

150

200

250

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Housing <<

Government

58

Government finances are improving rapidly. After another windfall tax gain (mostly income and corporate tax and VAT), the CPB now

expects a deficit of only 0.5% of GDP in 2016 (was -1.1%) and a balanced budget next year. 2018 should see a surplus; the first in ten

years. In the forecasts, debt drops below the 60% target.

As a result of major reforms in recent years, the long-term sustainability of the government finances appears favourable.

International organizations such as the European Commission, the IMF, the OECD and the European Central Bank have encouraged

the Dutch government to increase spending. Despite ample fiscal room to do so, the appeals are unlikely to be met with great

enthusiasm from the Dutch. “First priority is to rebuild buffers” was the initial reaction. Extra spending by the Dutch could be seen by

other countries as a token of goodwill towards Europe.

Policy is complicated by a heavily fragmented political landscape, which is likely to persist after the March 2017 elections. In the polls,

Geert Wilders’ PVV is still the largest, with about 35 seats, but with few parties showing willingness to form a coalition, the PVV is still

way off an absolute majority (76 seats). At this point, the most likely outcome of the elections is a coalition of 4 or 5 centre-right and

centre-left parties.

The Dutch government probably is only willing to significantly boost spending when economic growth slows down much more than is

currently being forecast. In that case, the Netherlands appears to have much more fiscal room to keep the economy afloat than most

other European countries. Against this backdrop, the Dutch economy should be able to continue to outperform the Eurozone average.

Gov’t <<

0

2

4

6

8

10

12

14

1815 1835 1855 1875 1895 1915 1935 1955 1975 1995 2015

-0.5

0.0

0.5

1.0

1.5

dec-14 dec-15 dec-16

Yield on Dutch 10yr government bond ‘Long-term’ rate

Dutch government bond yield at historically low levels

Yield on Dutch 10-yr government are still very low… …despite a recent pick-up

Yearly average, %

59 Gov’t <<

-3

-2

-1

0

1

2

3

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Low spread versus Germany

Yield spread with Germany back at low levels

%

60

0.0

0.5

1.0

2010 2013 2016

Fall of Rutte-II

Gov’t <<

40

50

60

70

80

2000 2002 2004 2006 2008 2010 2012 2014 2016

-0.5

0.0

-0.8

-0.3

-6

-5

-4

-3

-2

-1

0

1

2008 2010 2012 2014 2016

Balanced budget in sight

Government revenue

Government expenditure

CPB forecast European Commission forecast

Actual balance

Stable expenditures and surging income…

In euro billions, seasonally-adjusted

…are pushing fiscal balance back toward positive territoryAs % of GDP, seasonally-adjusted

European target

61 Gov’t <<

20

40

60

80

2007 2010 2013 2016

Revenues have increased

Income & company taxes are surging… …as are social contributions… …but gas revenues have plunged

4Q sum, in billion euros

0

10

20

30

40

2007 2010 2013 2016

VAT/excises

Other taxes

Income and company tax

20

40

60

80

2007 2010 2013 2016

Contributions, employees etc.

Contributions, employers Income on wealth (mainly gas revenues)

Sale of products and other income

62 Gov’t <<

40

50

60

70

80

2007 2010 2013 2016

0

20

40

60

80

2007 2010 2013 2016

Government expenditures have, on balance, been stable

Social security cost are rising… …while civil servant wages have stabilized… …and interest payments are in decline

4Q sum, in billion euros

Health

OtherIncome

Old-age

Compensation of employees

Investment & consumption

* Proceeds are booked as negative expenditure

4G-auction*

0

10

20

30

40

2007 2010 2013 2016

Other spending and subsidies

EU budget bill

Interest payments

63 Gov’t <<

0

10

20

30

40

50

60

70

2006 2008 2010 2012 2014 2016 2018

-6

-5

-4

-3

-2

-1

0

1

2006 2008 2010 2012 2014 2016 2018

Compliant with the rules of the Stability and Growth Pact

Government debt

Structural balance above Medium Term Objective…

As % of GDP

…and government debt drops back below 60%As % of GDP

64

Headline balance

Underlying primairy balance (structural less interest) excl. gas

Structural balance (headline adj for cycle and one-offs)

forecast

MTO

European target

Gov’t <<

-5

-4

-3

-2

-1

0

1

2

2006 2010 2012 2014 2016

Favourable long-term sustainability of government finances

Reforms have turned a long-term deficit into a long-term fiscal surplus

As % of GDP

65

Sustainability balance*

*The sustainability balance shows how much policy

measures need to be taken (in % of GDP) to ensure that

future generations can benefit to a similar degree from

public services at a constant tax burden (as a percentage of

GDP) as is faced by present generations. This balance shows

whether future tax revenues are sufficient to cover future

government expenditures. The current modest

sustainability surplus means that the debt level will stabilize

under the assumption of consistent arrangements.

62

63

64

65

66

67

68

69

70

2013 2020 2030 2040

Strong increase in pension age

In years

From 2024 onwards, the

entitlement age for state

old age will be linked to

life expectancy

Gov’t <<

Data sources

66

Page Sources Page Sources Page Sources

4 ING Forecasts 23 CBS, ING calculations 42 [1] CBS, ING calculations [2] CBS

5 [1] Macrobond, ING Forecasts,[2] CBS [3] CPB 24 [1] DG ECFIN [2] CBS [3] DG ECFIN, CBS, ING calculations 43 CBS, ING calculations

6 [1] CBS [2] CBS, ING Forecasts 25 DNB Bank Lending Survey 45 DG ECFIN, CBS

7 [1] CBS, EC [2] ING calculations 27 CBS, ING calculations 46 [1] Macrobond [2] CBS

9 CBS, WIOD, ING calculations 28 [1] CBS, CPB [2] Eurostat, DNB, ING calculations 47 CBS, ING calculations/forecasts

10 CBS, ING calculations 29 CBS, ING calculations 49 [1] VEH, Google Trends, ING calc. [2] Land registry, NVB

11 CBS, ING calculations 30 CBS, ING calculations 50 [1] CBS, DNB, ING calculations [2] [3] Macrobond, DNB

12 [1] DNB, ING cal. [2] DNB, Macrobond [3] CBS, ING calculations 31 CBS 51 CBS

13 [1] CPB, CBS [2] CBS, ING calculations 32 CBS, ING calculations 52 [1] Huizenzoeker, CBS, ING calculation [2] CBS

14 WIOD, ING calculations 33 CBS, ING calculations 53 Eichholtz, CBS, ING calculations

15 [1] NEVI/PMI [2] CBS, ING calculations/forecasts 34 CBS, ING calculations 54 CBS

16 [1] Macrobond [2] ECB 36 [1] CBS [2] CBS, ING calculations 55 OECD

17 See notes on slide 37 CBS, ING calculations 57 [1] CBS, ING calculations [2] CBS, CPB, EC

19 CBS, ING calculations 38 [1] CBS, DG ECFIN, ING calculations [2] CBS 58 CBS, ING calculations

20 CBS 39 [1] Eurostat [2] CBS 59 CBS, ING calculations

21 [1] ING [2] CBS 40 CBS, ING calculations 60 [1] CBS, CPB, ING forecasts [2] CBS

22 CBS, ING calculations 41 CBS, DG ECFIN, ING calculations 61 CPB

Sources <<

Contact details

67

Dimitry Fleming

Senior Economist ING NetherlandsEconomics Department

ACT A.11.054Bijlmerdreef 24Amsterdam

P.O. Box 18001000 BVAmsterdam

@ dimitry.fleming@ing.nl

Follow us (in Dutch):

@INGNL_economie

www.facebook.com/INGnl

www.youtube.com/user/INGnl

plus.google.com/+INGnl/posts

www.linkedin.com/company/ing-nederland

www.ing.nl/economie

+31 (0) 20 57 60 465

Disclaimer

68

This publication has been prepared by ING (being the Wholesale Banking business of ING Bank N.V. and certain subsidiary companies) solely for information purposes. It is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of this date and are subject to change without notice.

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