In 2010, prices of imported goods were 7.3 percent up on one year previously. Prices of exported goods rose by 6.8 percent. In the preceding four years, import prices also rose by more than export prices. The terms of trade deteriorated for the fifth year in a row in 2010. From 1991 to 2005, terms of trade improved almost continually. In the first five months of 2011, terms of trade hardly changed compared to one year previously.
Terms of trade
Higher oil prices main cause of 2010 decline
Developments in the prices of crude oil were the main cause of the deterioration in 2010. The Netherlands imports much more crude oil than it exports. As a result, the positive effect of a rise in oil prices on import prices is much larger than that on export prices. So rises in oil prices have a negative effect on Dutch terms of trade.
The euro price of a barrel of North Sea Brent oil was nearly 35 percent higher in 2010 than in 2009. In 2006, 2007 and 2008 oil prices were also much higher than one year previously. In 2009, terms of trade mainly deteriorated as a result of lower prices for natural gas, petroleum derivatives and chemical products, of which the Netherlands exports much more than it imports. In that year, prices for crude oil dropped considerably, and the price development of crude oil had a positive effect on terms of trade.
In addition to price developments of crude oil, price developments of basic metal and metal products also had a negative effect on Dutch terms of trade in 2010. Import prices rose by more than export prices, just as in the period 2006-2009. In 2007 and 2008, prices of agricultural products also contributed to the decline in terms of trade.
Exchange rate plays a small role
The exchange rate also contributed to the deterioration of terms of trade in 2009 and 2010. In these years, the euro depreciated compared to most other currencies - the US dollar, Japanese yen and Swiss franc for example. This had an upward effect on import prices. From 2002 to 2008, the euro had risen considerably compared to the US dollar. However, the effect of exchange rate developments on terms of trade is limited, since approximately 40 percent of imports and 60 percent of exports concern trade with other eurozone countries. In 2006, 2007 and 2008, terms of trade deteriorated, despite a considerable rise of the exchange rate.
Trade surplus up in 2010
Despite the deterioration of terms of trade, the difference between the value of exported goods and the value of imported goods was larger in 2010 than in 2009. The trade surplus amounted to 40.6 billion euro, compared to 35.4 billion in 2009. If services are also taken into account, the trade surplus in 2010 came to 43.9 billion euro, i.e. 7.5 percent of Dutch GDP. In 2010, the Netherlands had a trade surplus for the thirtieth year in a row.
Trade surplus as percent of GDP