ECONOMY
After a strong performance in the 1990s, which brought unemployment to below 3%, the Dutch economy struggled through 2002 and 2003, plagued by relatively high costs and weak domestic demand. GDP growth recovered in 2006 and peaked at 3.5% in 2007. The global financial crisis has hit the Netherlands hard since fall 2008; the Dutch economy entered recession in the fourth quarter of 2008, but annual GDP growth that year was still 2.1%. In contrast, GDP was expected to shrink by 4.75% in 2009 and is expected to shrink by 0.5% in 2010 due to slowing international trade--exports were expected to drop by 16.25% in 2009--and decreasing private consumption. In 2010, the increasing budget deficit (expected to be 6.7% of GDP) and unemployment (expected to be 9.5%) are causes for serious concern.
The government has launched three economic stimulus packages since November 2008. The first package was worth about $8.3 billion, the second consisted mainly of government guarantees to stimulate lending and exports, and the third was worth $9 billion, bringing the total value of the stimulus measures to $17.3 billion, or approximately 2% of GDP. A key element of the packages is an agreement among stakeholders that the Dutch Government will not cut its stimulus spending before 2011, and then only “if the economy has recovered sufficiently.” The state finances have further deteriorated due to government interventions in the financial sector, including the nationalization of the Dutch activities of ABN Amro/Fortis Bank, and capital injections to ING and other financial institutions whose balance sheets were compromised by U.S. mortgage-backed securities and other toxic assets.
Private consumption in the Netherlands, which had grown by 2.1% in 2007, continued to increase by 1.8% in 2008. The unemployment rate, which had previously dropped from 4.5% in 2007 to 3.9% in 2008, was projected to increase to 5.5% in 2009 and is projected to increase to 9.5% in 2010 as a result of the global economic downturn. After a drop in the early 2000s, business investment (excluding the housing sector) staged a recovery in 2005-2006. This upward trend peaked in 2008 with an increase of 10.4% but is expected to reverse course in the following two years, with investment forecast to decline by 14.75% in 2009 and by 13.0% in 2010.
Before the onset of the financial crisis, many firms in the Netherlands cited a loss of competitiveness as a major impediment to growth as unit labor costs outpaced those of their major competitors, including within the euro area. Smaller wage increases codified in collective bargaining agreements before growth accelerated in 2006 helped Dutch firms stay competitive during this period. However, an increasing labor shortage resulted in higher wage demands in the second half of 2007 and into 2008, with the average wage increasing by 3.3%. The pace of job growth reached 10-year highs in 2007, but it fell sharply in late 2008 as fallout from the financial crisis constricted demand. Inflation ranged from 1.1% to 1.7% between 2004 and 2007, reaching its peak in 2008 at 2.5%. The projected inflation rate for 2009 was 1.0%.
The Netherlands was one of the first EU member states to qualify for the Economic and Monetary Union (EMU). Traditionally, Dutch fiscal policy sought to strike a balance between further reductions in public spending and lower tax and social security contributions. During the first half of the current decade, the government struggled to keep the budget deficit within the limit of 3% of GDP set by the EU’s Growth and Stability Pact. The government achieved a budget surplus of 0.6% in 2006 and 0.7% in 2007. Despite the financial crisis, it managed to create a budget surplus of 0.9% in 2008, but this was expected to change dramatically in 2009 as a result of increased government spending on stimulus packages, unemployment benefits, and financial sector bailouts. The government was expecting a budget deficit of 4.1% of GDP in 2009 and is expecting a budget deficit of 6.7% of GDP in 2010, thus exceeding the EU’s limit.
Government
Role
Although the private sector is the cornerstone of the economy, the Netherlands has an important and vibrant public sector. The government plays a significant role through permit requirements and regulations pertaining to almost every aspect of economic activity; however, the current cabinet aims to reduce some of the administrative burden. For example, as part of the economic stimulus measures, some environmental regulations have been temporarily relaxed to speed up certain infrastructure projects. The government had gradually reduced its role in the economy since the 1980s, but it has been forced to become more active again as the recent economic downturn has necessitated its intervention. Unabated privatization came to a halt in December 2007, when the government approved a policy that "the State will not pursue selling its interest in approximately 30 companies of 'vital interest'."
Trade
and Investment
The Netherlands, which derives more than two-thirds of GDP from merchandise and
services trade, had a record trade surplus of approximately $56 billion in 2007.
In 2008, this surplus decreased to approximately $50 billion. With no
significant trade or investment barriers, the Netherlands remains a receptive
market for U.S. exports and an important investment partner. The Netherlands is
the eighth-largest destination for U.S. exports ($40.2 billion in 2008), as well
as the fourth-largest direct investor in the United States. Dutch accumulated
direct investment in the United States in 2007 was $209 billion. The United
States is the second-largest investor in the Netherlands, with $370 billion
direct investment as of 2007. There are more than 1,600 U.S. companies with
subsidiaries or offices in the Netherlands. The Dutch are strong proponents of
free trade and staunch allies of the U.S. in international fora such as the
World Trade Organization (WTO) and the Organization for Economic Cooperation and
Development (OECD).
Sectors
of the Economy
Services account for about three-quarters of the national income and are primarily in transportation, distribution, logistics, and financial areas such as banking and insurance. Industrial activity generates about a fourth of the national product and is dominated by the metalworking, oil refining, chemical, and food processing industries. The agriculture and fisheries sector account for some 2% of GDP.
Although Dutch crude oil production is small, the Netherlands is the third-largest producer and the second-largest net exporter of natural gas in Europe (after Norway). At year-end 2006, the country had 1.4 trillion cubic feet of natural gas reserves valued at over $166 billion. The port city of Rotterdam is one of the world's major centers for crude oil imports, trading, refining, and petrochemical production. Key import sources include Russia, Saudi Arabia, and Norway. Domestic gas resources are forecast to run out by 2030. To remain an energy player after its own resources are depleted, the Netherlands is cultivating energy relationships with potential long-term supplier countries such as Algeria, Kazakhstan, Libya, Qatar, and--most importantly--Russia. For example, Dutch gas pipeline company Gasunie, wholly owned by the Dutch Government, holds a 9% stake in Gazprom’s Nord Stream pipeline, which will transport gas from Russia to Germany under the Baltic Sea. The Netherlands’s goal is to become a gas “roundabout” for the Western Europe, meaning a hub that gathers natural gas from various sources (including the North Sea, Algerian and Qatari liquefied natural gas (LNG), and Russia), and then distributes it via pipeline to continental Europe.
Environmental
Policy
The Netherlands is a small and densely populated country. Its economy depends on
industry (particularly chemicals and metal processing), intensive agriculture
and horticulture, and its infrastructure, which takes advantage of the country's
geographical position at the heart of Europe's transportation network. These
factors have led to major pressure on the environment. The government works
closely with industry and nongovernmental organizations to reach environmental
targets. The Dutch welcomed the EU's 2008 directive to cut greenhouse gas (GHG)
emissions 20% from 1990 levels and increase power derived from renewable sources
to 20% by 2020. In its national “Clean and Efficient” climate plan published in September 2007, the government unilaterally promised to go even further by 2020: reducing GHG emissions by 30% and cutting its overall energy use by 2% per year. The Environment Ministry recently unveiled its plan requiring the entire Dutch Government to procure only sustainable, “green” goods and services as of 2010. The government acknowledges it will need to rely heavily on fledgling clean energy technologies in order to reach its GHG reduction goals. For example, Prime Minister Balkenende wants the Netherlands to become a global leader in the development of carbon capture and sequestration (CCS). Many independent energy experts, however, consider the government’s aggressive climate change targets to be overly optimistic.
GDP (2008): $827 billion.
GDP growth (2009 est.): - 4.75%.
GDP per capita (2008): $50,150.
Natural resources: Natural gas, petroleum, fertile soil.
Agriculture (2% of GDP): Products--dairy, poultry, meat, livestock, flower bulbs, cut flowers, vegetables and fruits, sugar beets, potatoes, wheat, barley.
Industry (24.4% of GDP): Types--agro-industries, steel and aluminum, metal and engineering products, electric machinery and equipment, bulk chemicals, natural gas, petroleum products, construction, transport equipment, microelectronics, fishing.
Services (73.6% of GDP): Types--trade, hotels, restaurants, transport, storage and communication, financial (banking and insurance) and business services, care and other.
Trade (2008): Exports--$537.5 billion f.o.b.: mineral fuels, chemicals, machinery and transport equipment, processed food and tobacco, agricultural products. Imports $485.3 billion f.o.b.: mineral fuels and crude petroleum, machinery, transportation equipment, consumer goods, foodstuffs. Major trading partners (exports/imports)--EU (76%/56%), Germany (24.2%/19.7%), Belgium (12.6%/10.5%), China (1%/7.6%), United Kingdom (9.2%/6.3%), and U.S. (4.5%/8.2%)
Figures are based on a July 2009 exchange rate of 0.72 euro to the dollar. .
