Netherlands: Economy

The global financial crisis hit the Netherlands hard in the fall 2008; the Dutch economy entered recession in the fourth quarter of 2008, but annual GDP growth that year was still 1.9%. In 2009, however, the economy shrank by 3.9%. The economy recovered slowly in 2010 with an annual growth rate of 1.8% and 1.6% in 2011.This is mainly due to the increase in international trade, the largest engine of the Dutch economy; however, growth is expected to slow to 1.75% in 2012. In 2010, exports increased by 12.8% and imports by 11.7%, while in 2011 the figures were 18.5% and 19.67% respectively. The 2011 national budget deficit (4.2 % of GDP, with a forecast for 2012 of 4.5%) and government debt (64.4%) still are cause for concern as they exceed the limits set by the European Growth and Stability Pact.

In order to fight against the consequences of the crisis, the government 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. The state finances deteriorated further due to government interventions in the financial sector, including the nationalization of the Dutch activities of ABN Amro/Fortis Bank (costing a total of $37.6 billion), and capital injections to ING ($12.5 billion total) and other financial institutions whose balance sheets were compromised by U.S. mortgage-backed securities and other toxic assets. The financial institutions are repaying their government loans.

Private consumption dropped by 2.5% in 2009 and recovered by 0.3% in 2010. The slow recovery is expected to continue by 0.5% in 2011 and 2012. Unemployment was 5.2% in 2011. After a drop in the early 2000s, business investment (excluding the housing sector) staged a recovery from 2005 onwards. In 2008, business investment was up 7.4%, but it decreased sharply by 18.2% in 2009. The decline in business investment did not continue as sharply as predicted, as it dropped by 1.5% in 2010, grew by 5.75% in 2011, and is predicted to grow by 4.25% in 2012.

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 steadily increased up to 2008, but then declined sharply in 2009 as fallout from the financial crisis constricted demand. The labor productivity is increasing from the 3.1% in 2009, to 3.5% in 2010, 2.25% in 2011, and to an expected 1.75% in 2012. Inflation ranged from 1.1% to 2.5% between 2004 and 2008. In 2009, it fell to 1.2% and remained low at 1.3% in 2010. Due to international developments including the rapid demand growth in emerging markets, the inflation rate grew by 2.3% in 2011 and is expected to maintain the same pace in 2012.

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 0.5% in 2006, 0.2% in 2007, and 0.7% in 2008. This shifted to a deficit of 5.4% in 2009 as a result of the crisis, more specifically increased government spending on stimulus packages, unemployment benefits, and financial sector bailouts. The deficit remained the same in 2010, but improved to 4.2% in 2011. A deficit of 4.5% is projected for 2012, but the government is currently contemplating austerity measures that will allow the Netherlands to comply with the EU’s standards.. The government debt also increased rapidly from 45.5% in 2007 to 62.8% in 2010, and to 64.4% in 2011. The debt is expected to grow slowly to 64.5% in 2012.

In order to fight against the increasing government debt and deficit levels, the government announced it was going to cut spending by $26 billion by 2015. The largest austerity measures include the downsizing of government ($8.5 billion) and cutting back on ‘income transfers,’ i.e., subsidies including child daycare and rent subsidies ($6.1 billion). There are other significant cutbacks, for example, on defense, culture and innovation subsidies, and development cooperation.

Government Role
Although the private sector is the cornerstone of the economy, the Netherlands has traditionally had an important and vibrant public sector. Despite the fact that the government still plays a significant role through permit requirements and regulations pertaining to almost every aspect of economic activity, the goal of the new government is to reduce significantly the administrative burden on business and shrink the public sector. The government had steadily reduced its role in the economy since the 1980s, but it was forced to become somewhat more active again as the economic downturn necessitated its intervention in the financial sector. The financial institutions that received government aid in the midst of the crisis have almost paid back all the loans. The exception is nationalized ABN Amro Bank that will not be re-privatized before 2013. The new government also aims to privatize the public transport companies in the largest cities. In general, the government’s ownership of private businesses continues to be limited.

Trade and Investment
The Netherlands, where the total of goods, imports and exports is greater than the GDP, had a record trade surplus of approximately $47 billion in 2007. In 2008, this surplus decreased to approximately $43.2 billion, and in 2009 to $42.2 billion. With the escalation of the international trade in 2010, the Dutch trade surplus grew to $57 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 ninth-largest destination for U.S. exports ($35 billion in 2010), as well as the third-largest direct investor in the United States. Dutch accumulated direct investment in the United States in 2009 was $238 billion. The same year, the Netherlands was the largest destination for U.S. direct investment abroad with approximately $471 billion, representing approximately 13% of the total foreign direct investments. 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 forums 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, in 2009 the Netherlands was the second-largest producer and the second-largest net exporter of natural gas in Europe (both after Norway). At the beginning of 2010, the country had 1.4 trillion cubic feet of natural gas reserves; the government earns approximately $14 billion annually from gas exploration and extraction through taxes and other levies. The port city of Rotterdam is one of the world's major centers for crude oil imports, trading, refining, and petrochemical production. Key sources of imported petroleum products 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 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. The Netherlands has a binding national target to reduce emissions in sectors not covered by the EU emissions trading system by 16% in 2020. It also has a binding national target of 14% in 2020 for renewable energy. Many independent energy experts, however, consider the government’s aggressive climate change targets to be overly optimistic.


CIA World Factbook (March 2012)
U.S. Dept. of State Country Background Notes ( March 2012)