Economy of the Netherlands


Economy of the Netherlands - Definition

Economy - overview: The Netherlands is a prosperous and open economy in which the government has successfully reduced its role since the 1980s. Industrial activity is predominantly in food processing, chemicals, petroleum refining, and electrical machinery. A highly mechanized agricultural sector employs no more than 4% of the labor force but provides large surpluses for the food-processing industry and for exports. The Dutch rank third worldwide in value of agricultural exports, behind the US and France. The Netherlands successfully addressed the issue of public finances and stagnating job growth long before its European partners. This has helped cushion the economy from a slowdown in the euro area. Strong 3.8% GDP growth in 1998 was followed by an only slightly lower 3.4% expansion in 1999. The outlook remains favorable, with real GDP growth in 2000 projected at 3.25%, along with a small budget surplus. The Dutch were among the first 12 EU countries establishing the euro currency zone on 1 January 1999.

As of 2000, the Dutch economy was going into its sixth year of expansion, combining strong gross domestic product growth with sharply falling unemployment and modest inflation. A tight labor market and firming inflation add to the danger of overheating of the economy. Only mildly affected by the crisis in emerging markets and a subsequent slowdown in the euro area, the Dutch economy expanded by 3.6% in 1999. Economic growth in 1999 was driven predominantly by investment and consumer spending, buoyed by sizable income gains resulting from a boom in asset prices. With job growth largely outpacing an expansion of the labor force, unemployment in 1999 fell to less than 3% of the labor force, a level last seen in the early 1970s. Consumer price inflation remained modest as the effects of higher crude oil prices and depreciation of the euro lifted the CPI in 1999 to 2.2%.

Strong 4.2% GDP growth in the first quarter of 2000 supports expectations of sustained growth also in 2000 and beyond. Sailing on the waves of strong world trade growth, the Dutch economy is predicted to expand by 4.3% in 2000 and to show 4% real growth in 2001. A tight labor market will lead unemployment to fall to a low of 2%. Consumer price inflation, on the other hand, is expected to firm to 2.6% in 2000, and to 3.4% in 2001. Labor market conditions and price developments have led the OECD to send out warnings for overheating of the economy. Dutch fiscal policy, aimed at striking a balance between reduction of public spending and cutting taxes, seems successful. For the first time since 1973, the central government budget ran a surplus (0.5% of GDP) in 1999. The stock of public debt fell in step from well over 67% in 1998 to 63.7% of GDP. The budget is forecast to run a surplus also in 2000 and 2001, while the stock of public debt will fall to 53.7% of GDP in 2001.

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 the permit requirements and regulations pertaining to almost every aspect of economic activity. The government combines a rigorous and stable microeconomic policy with wide-ranging structural and regulatory reforms. Public spending, including social security transfer payments, has fallen to 46% of GDP. The government has gradually reduced its role in the economy since the 1980s, and privatization and deregulation continue unabated.

Trade and Investment
The Netherlands, which derives more than two-thirds of GDP from merchandise trade, had strongly positive balance of payments for 1999 estimated at $17.5 billion -- 4% of GDP, the main contributor to a current account surplus of close to 6% of GDP. Since there are 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 U.S. export market, as well as the third-largest direct investor in the United States, behind the United Kingdom and Japan. Dutch accumulated direct investment in the United States in 1998 was $97 billion. The United States is the largest investor in the Netherlands with direct investment of $79 billion. 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 the staunchest allies of the U.S. in international fora such as the World Trade Organization (WTO) and the OECD.

Sectors of the Economy
Services account for more than half of the national income and are primarily in transportation, distribution, and logistics, and in financial areas, such as banking and insurance. Industrial activity, including mining, generates about 20% of the national product and is dominated by the metalworking, oil refining, chemical, and food-processing industries. Construction amounts to about 6% of GDP. Agriculture and fishing, although visible and traditional Dutch activities, account for just 4%.

Although Dutch crude oil production is insignificant, the Netherlands ranks among the largest producers and distributors of natural gas. The Slochteren gasfields in Groningen Province are among the world's largest-producing natural gas fields. At present, total proven natural gas reserves--on the mainland and on the North Sea continental shelf--amount to close to 2,000 km³, of which about 80% is accounted for by reserves on the mainland. Current gas production is running at an annual average of about 80 km³, roughly half of which is exported to EU member countries. General government revenues from natural gas totaled about $1.2 billion in 2000.

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 on 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 National Environmental Policy Plan (NMP) sets out Dutch environmental policy. The first version was published in 1989, followed by second and third versions in 1993 and 1998, respectively. NMP-4, laying out government environmental policy over the next few years, will be published at the end of 2000. Under the NMP, the government seeks to cut back on all forms of pollution by 80%-90% within one generation, meaning that by 2010, the present generation should be able to pass on a clean environment to the next one.

Although the environmental quality in the Netherlands has improved significantly, some important targets, particularly with respect to nitrogen oxide and ammonia emissions, climate change, and noise reduction, will not be realized within the timeframe set in the NMPs. The main reason for this is the close relation between economic growth and its negative effects on the environment. The NMP-3, therefore, proposes drastic measures in order to be able to meet the targets. Sacrificing economical benefits for environmental concerns raises political questions by the population as the Dutch economy is under pressure however.

The Dutch Government works closely with industry and NGOs on implementation of environmental policy. To be able to reach environmental targets, the government has signed agreements with the private sector and other relevant organizations.

GDP: purchasing power parity - $582 billion (2004 est.)

GDP - real growth rate: 1.2% (2004, 2nd quarter)

GDP - per capita: purchasing power parity - $35.700 (2004 est.)

GDP - composition by sector:
agriculture: 3.5%
industry: 26.8%
services: 69.7% (1998 est.)

Current account - balance: Surplus: $19.9 billion = 3.4% of GDP (2004 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: 2.9%
highest 10%: 24.7% (1991)

Inflation rate (consumer prices): 1.0% (September 2004)

Labor force: 7.1 million (2003)

Labor force - by occupation: services 73%, industry 23%, agriculture 4% (1998 est.)

Unemployment rate: 6.0% but generous welfare benefits have prompted large numbers to drop out of the labor market (September 2004)

Budget:
revenues: $163 billion
expenditures: $170 billion, including capital expenditures of $NA (1999 est.)

Industries: agroindustries, metal and engineering products, electrical machinery and equipment, chemicals, petroleum, construction, microelectronics, fishing

Industrial production growth rate: 3% (1999)

Electricity - production: 88,736 GWh (1998)

Electricity - production by source:
fossil fuel: 91.32%
hydro: 0.11%
nuclear: 4.08%
other: 4.49% (1998)

Electricity - consumption: 94,325 GWh (1998)

Electricity - exports: 400 GWh (1998)

Electricity - imports: 12,200 GWh (1998)

Agriculture - products: grains, potatoes, sugar beets, fruits, vegetables; livestock

Exports: $169 billion (f.o.b., 1998)

Exports - commodities: machinery and equipment, chemicals, fuels; foodstuffs

Exports - partners: EU 78% (Germany 25%, Belgium-Luxembourg 13%, France 10%, UK 10%, Italy 6%), Central and Eastern Europe, US (2003)

Imports: $152 billion (f.o.b., 1998)

Imports - commodities: machinery and transport equipment, chemicals, fuels; foodstuffs, clothing

Imports - partners: EU 61% (Germany 18%, Belgium-Luxembourg 10%, UK 7%, France 7%), US 8%, Central and Eastern Europe (2003)

Debt - external: $0 (unspecified)

Economic aid - donor: ODA, $3.0 billion (2002)

Currency: 1 euro, = 100 eurocents

Exchange rates: Euros per US$1 - 1.28 (October 2004)
note: The euro replaced the local currency in consenting countries for all transactions in 2002, including the Dutch Guilder.

Fiscal year: calendar year

See Also