Economy of the Netherlands

Economy of Netherlands

Currency	Euro (EUR) = € 1
Fiscal year	calendar year
Trade organisations	EU, WTO and OECD
Statistics
GDP	$752 billion (nominal, 2015)[1] $908 billion (PPP, 2017)[2]
GDP rank	17th (nominal) / 27th (PPP)
GDP growth	+2.1% (2016 est.)[3]
GDP per capita	$48,860 (nominal, 2015 est.)[4] $50,338 (PPP, 2016 est.)[5]
GDP by sector	agriculture: 1.6%; industry: 18.8%; services: 79.6% (2015 est.)
Inflation (CPI)	0.2% (2016 est.)[6]
Population below poverty line	9.1% (2013 est.)
Gini coefficient	25.1 (2013 est.)
Labour force	8.4 million (2016 est.)[7]
Labour force by occupation	agriculture: 2%; industry: 18%; services: 80% (2005 est.)
Unemployment	5.3% (January 2017)[8]
Average gross salary	3,073 € / month (2016)[9]
Average net salary	2,263 € / month (2016)[10]
Main industries	agriculture-related industries, oil and natural gas, metal and engineering products, electronic machinery and equipment, chemicals, petroleum, construction, microelectronics, fishing
Ease-of-doing-business rank	28th (2017)[11]
External
Exports	$488.3 billion (2015 est.)
Export goods	natural gas, machinery and equipment, chemicals, fuels; foodstuffs
Main export partners	Germany 24.5%%  Belgium 11.1%%  France 8.4%  United Kingdom 9.3%  Italy 4.2% (2015 est.)[12]
Imports	$404.6 billion (2015 est.)
Import goods	machinery and transport equipment, chemicals, fuels, foodstuffs, clothing
Main import partners	Germany 14.7%  China 14.5%  Belgium 8.2%  United Kingdom 5.1%  Russia 5.7%  Norway 4.1% (2015 est.)[13]
FDI stock	$608.9 billion (31 December 2012 est.)
Gross external debt	$4.154 trillion (31 December 2014 est.)
Public finances
Public debt	65.1% of GDP (2015 est.)
Revenues	$327.7 billion (2016)[14]
Expenses	$324.6 billion (2016)[14]
Economic aid	€ 4 bn (As of 2005)
Credit rating	Standard & Poor's:[15] AAA (Domestic) AAA (Foreign) AAA (T&C Assessment) Outlook: Stable[16] Moody's:[16] Aaa Outlook: Stable Fitch:[16] AAA Outlook: Stable
Foreign reserves	US$42.92 billion (31 December 2014 est.)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars.

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Dutch exports in 2006

The labour productivity level of the Netherlands is one of highest in Europe. OECD, 2012

According to the World Bank and the International Monetary Fund, the Netherlands was the 18th largest economy of the world in 2012, while the country has only about 17 million inhabitants. (see: List of countries by GDP (nominal)). GDP per capita is roughly $48,860 which makes it one of richest nations in the world (see: List of countries by GDP (PPP) per capita). Between 1996 and 2000 annual economic growth (GDP) averaged over 4%, well above the European average. Growth slowed considerably in 2001-05 as part of the global economic slowdown. 2006 and 2007 however showed economic growth of 3.4% and 3.9%. The Dutch economy was hit considerably by the ongoing global financial crisis and the ensuing European debt crisis.

The Netherlands has discovered huge natural gas resources since 1959. The sale of natural gas generated enormous revenues for the Netherlands for decades, adding hundreds of billions of euros to the government's budget.^[17] However, the unforeseen consequences of the country's huge energy wealth impacted the competitiveness of other sectors of the economy, leading to the theory of Dutch disease.^[17]

The Netherlands have a prosperous and open economy, which depends heavily on foreign trade. The economy is noted for stable industrial relations, fairly low unemployment and inflation, a very big sizable current account surplus (compared to the size of the country even more than Germany) and an important role as a European transportation hub, with Rotterdam as by far the biggest port in Europe and Amsterdam with one of the biggest airports in Europe. Industrial activity is predominantly in food processing, chemicals, petroleum refining, hightech, financial services, creative sector and electrical machinery. A highly mechanised agricultural sector employs no more than 2% of the labour force but provides large surpluses for the food-processing industry and for exports. The Netherlands, along with 11 of its EU partners, began circulating the euro currency on 1 January 2002.

The stern financial policy has been abandoned in 2009 because of the current credit crises. The relatively large banking sector was partly nationalised and bailed out through government interventions. The unemployment rate dropped to 5.0% in the summer of 2011, but increased with a sharp rate since then to 7.3% in May 2013 and 6.8% in 2015.^[18][19] The state budget deficit is about 2.2% in 2015 well below the norm of 3.0% in the EU.^[20] Historically, the Dutch introduced and invented the stock market^[21] by the merchandise trading through Dutch East India Company. The Netherlands is a founding member of the European Union, the OECD and the World Trade Organization.

History

After declaring its independence from the empire of Philip II of Spain in 1581, the Netherlands experienced almost a century of explosive economic growth. A technological revolution in shipbuilding and trade knowledge and capital, due to Protestant traders of Flanders who fled to the Netherlands, helped the young Republic become the dominant trade power by the mid-17th century. In 1670 the Dutch merchant marine totalled 568,000 tons of shipping—about half the European total. The main reasons for this were the dominance of the Amsterdam Entrepot in European trade, and that of the Dutch East India Company (or Vereenigde Oost-Indische Companie - VOC) and West India Companies in intercontinental trade. Unique was that the V.O.C. was the first multinational, while its shares were traded at one of the first stock markets in the world, in Amsterdam. Beside trade, an early "industrial revolution" (powered by wind, water and peat), land reclamation from the sea, and agricultural revolution, helped the Dutch economy achieve the highest standard of living in Europe (and presumably the world) by the middle of the 17th century. Affluence facilitated what is known as the Dutch Golden Age. This economic boom abruptly came to an end by a combination of political-military upheavals and adverse economic developments around 1670. Still the Netherlands kept a high level of prosperity, due to trade and agriculture.

Towards the 1800s, the Netherlands did not industrialize as rapidly as some other counties in Europe. One explanation for this is that the Netherlands were struggling to come to terms with having lost their dominant economical (based mainly on trade and agriculture) and political position in the world. Griffiths argues that government policies made possible a unified Dutch national economy in the 19th century. They included the abolition of internal tariffs and guilds; a unified coinage system; modern methods of tax collection; standardized weights and measures; and the building of many roads, canals, and railroads.

As in the rest of Europe, the 19th century saw the gradual transformation of the Netherlands into a modern middle-class industrial society. The number of people employed in agriculture decreased while the country made a heroic effort to revive its stake in the highly competitive industrial and trade business. The Netherlands lagged behind Belgium until the late 19th century in industrialization, then caught up by about 1920. Major industries included textiles and (later) the great Philips industrial conglomerate. Rotterdam became a major shipping and manufacturing center.^[22] Poverty slowly declined and begging largely disappeared along with steadily improving working conditions for the population.

Since 1959, the Netherlands discovered large natural gas fields. The export of natural gas led to large windfall profits. However, as an unforeseen consequence, these were believed to have led to a decline in the manufacturing sector in the Netherlands.^[23]

Government

While the private sector is the cornerstone of the Dutch economy, governments at different levels have a large part to play. Public spending, excluding social security transfer payments, was at 28% of GDP in 2011.^[24] Total tax revenue was 38.7% of GDP in 2010,^[25] which was below the EU average.^[26] In addition to its own spending, 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. The government has gradually reduced its role in the economy since the 1980s. Privatisation and deregulation is still continuing. With regards to social and economic policy, the government cooperates with its so called social partners (trade unions and employers' organizations). The three parties come together in the Social-Economic Council (‘Sociaal Economische Raad’), the main platform for social dialogue.

Controversial issues

Labour market and social welfare

The Dutch labour market has relatively strict regulations for employers on firing employees, although by June 2014 the House of Representatives has agreed to loosen these regulations. Due to the costs of employees and costs of firing them, a big part of the working force (about 15% of the working force) is an independent one person company (ZZP). They are independent and get paid by delivery without higher social costs. Another big part of the workforce is hired as temporary workforce. State unemployment benefits in the form of a 70% benefit of the employee's last-earned salary for up to three years (with a maximum of roughly 2500 euros per month) are available for fired employees, provided that they have worked for a certain minimum time period, usually 26 weeks.^[27]

Age of retirement

Every Dutch citizen gets the AOW, a state pension, from the age of 67. Married couples or those who live together receive 50% of minimum wage per person. The biggest part (about 70%) earns an extra pension from the private pension funds. Employees are obliged to take part in the sector pension funds. In total the amount of pension funds are above 1400 billion in 2015 for less than 17 million people. Employees receive on average about 70% of their last salary. During the economic crisis and because of low interest rates, the pensions funds have big problems to increase pensions with the inflation. The Dutch pension system is regarded as one of the best in the world.^[28]

Home mortgage interest deduction

The Netherlands was one of the few countries in the world where the interest paid on mortgages is almost fully deductible from income tax. Since 2013 big changes were made. The conditions allowing a borrowing of more that 116% of the value of the home ware reduced to 106% and are still continuously being reduced every year. The deduction is also capped to 50.5% and reducing every year.^[29] Together with the after-effects of the Financial crisis of 2007–2008 the result was a housing crisis, with a decrease of prices almost 25% percent in some areas. Recent years have shown a recovery of 10% to even 20% per year in the most popular cities.

Netherlands Export Treemap by Product (2014) from MIT Observatory of Economic Complexity

The Service sector accounts for more than half of the national income, primarily in transportation, distribution and logistics, financial areas, software development and the creative industry. The breadth of service providers in financial services and a Protestant work ethic have contributed to the Netherlands achieving a DAW Index score of 5 in 2012. Industrial activity is dominated by the machinery, electronics/high tech industry, 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 2%.

The Netherlands continues to be one of the leading European nations for attracting foreign direct investment and is one of the five largest investors in the United States. The economy experienced a slowdown in 2005, but in 2006 recovered to the fastest pace in six years on the back of increased exports and strong investment. The pace of job growth reached 10-year highs in 2007. The Netherlands is the fifth-most competitive economy in the world, according to the World Economic Forum's Global Competitiveness Report.^[30]

Energy sector

Natural Gas

Natural gas concessions in the Netherlands. Today the Netherlands accounts for more than 25% of all Natural Gas reserves in the EU

While its oil reserves in the North Sea are of little importance, in the Netherlands have an estimated 25% of natural gas reserves in the EU.^[31] Natural gas reserves of the Netherlands are estimated (as of 2014) to be about 600 billion cubic feet,^[32] or about 0.3% of the world total. In 2014-2015 the government decided to reduce the production of gas significantly due to problems of sinking ground, differential settlement levels and tremors (small earth quakes) causing damages to properties. This will cost about 0.2% on economic growth in 2015 and the year after.

Beginning in the 1950s, the Netherlands discovered huge natural gas resources. The sale of natural gas, generated enormous revenues for the Netherlands for decades to come.^[17] However, the unforeseen consequences of the country's huge energy wealth, impacted the competitiveness of other sectors of the economy, leading to the theory of Dutch disease.^[17]

The discovery of the large Groningen natural gas field in 1959 and the subsequently massive windfalls accrued, were believed to have led to a decline in the manufacturing sector in the Netherlands.^[23]

Nuclear energy

Researchers in the Netherlands began studying nuclear energy in the 1930s and began construction of research reactor Dodewaard in 1955. Researchers’ goal was to introduce nuclear power technology by 1962 and replace fossil fuels. In 1968, a test nuclear reactor was attached to the power grid. This unit was shut down in 1997. In the 1970s, the Dutch chose a policy that required reprocessing all spent nuclear fuel. In 1984, the government decided to create a long-term (100 years) storage facility for all intermediate and low-level radioactive waste and research strategies for ultimate disposal. In September 2003, the Central Organization for Radioactive Waste created an interim storage facility for high-level waste. The Netherlands' only commercial nuclear reactor is Borssele, which became operational in 1973 and as of 2011 produces about 4% of the country’s electricity.^[33] The older Dodewaard nuclear power plant was a test reactor that later got attached to the national grid but was closed in 1997. A 2MW research reactor is located in Delft, as part of the physics department of Delft University of Technology. This reactor is not meant for energy provision, but used as neutron- and positron-source for research.

In 1994, the States General of the Netherlands voted to phase out nuclear power after a discussion of nuclear waste management. In 1997, the power station at Dodewaard was shut down and the government decided it was planning to end Borssele's operating license in 2003. This has since been postponed to 2034, if it complied with the highest safety standards. The owners, Essent and Delta, will invest 500 million euro in sustainable energy, together with the government—money which the government claims otherwise should have been paid to the plants' owners as compensation. After the 2010 election, the new government was open to expanding nuclear power. Both of the companies that share ownership of Borssele are proposing to build new reactors.^[34][35] In January 2012, Delta announced it postpones any decision to start building a second nuclear power plant.

Tourism

In 2011 the Netherlands was visited by 11.3 million foreign tourists.^[36] In 2012, the Dutch tourism industry contributed 5.4% in total to the country's GDP and 9.6% in total to its employment. With its global ranking of 147th and 83rd place for total contribution to respectively GDP and employment, tourism is a relatively small sector of the Dutch economy.^[37] North Holland was by far the most popular province for foreign tourists in 2011. Out of all 11.3 million tourists, 6 million visited North Holland. South Holland took the second place with 1.4 million. Germans, Britons and Belgians made up the majority of foreign tourists, respectively 3, 1.5 and 1.4 million.^[38] There are seven World Heritage Sites in the Netherlands. The Netherlands are well known for their art and rich historical heritage.

Largest companies

The Netherlands is home to several large multinationals. Royal Dutch Shell is the largest private company of the Netherlands by revenue and the second largest in the world after Exxon Mobil. Other well-known multinationals are Heineken, Ahold, Philips, TomTom, Unilever, Randstad and ING, all of which have their headquarters in Amsterdam except Unilever which is located in Rotterdam. Thousands of companies of non-Dutch origin have their headquarters in the Netherlands, like EADS, LyondellBasell and IKEA, because of attractive Corporate tax levels.

The Netherlands' biggest companies as of 2011 are as following:

See also

• Bureau for Economic Policy Analysis
• De Nederlandsche Bank (Central Bank of The Netherlands)
• Dutch disease
• Brainport
• Port of Rotterdam
• List of companies of the Netherlands
• Ministry of Finance
• Polder Model (Dutch version of consensus policy in economics)
• Social-Economic Council (economic advisory council of the Dutch government)
• Taxation in the Netherlands
• VNO-NCW (Confederation of Netherlands Industry and Employers)
• BrabantStad
• Randstad

Sources

• CBS - Statistics agency of the Netherlands
• CPB - Netherlands Bureau for Economic Policy Analysis
• DNB - Dutch central bank
• Eurostat - EU statistics agency
• CIA World Factbook
• Infographic about the relationship of energy to the economy in the Netherlands. Dutch government, 2012

External links

• World Bank Summary Trade Statistics Netherlands
• Useful information about the financial institutions in the Netherlands
• Tariffs applied by the Netherlands as provided by ITC's Market Access Map, an online database of customs tariffs and market requirements

Further reading

• van Riel, Arthur. "Review: Rethinking the Economic History of the Dutch Republic: The Rise and Decline of Economic Modernity Before the Advent of Industrialized Growth," The Journal of Economic History, Vol. 56, No. 1 (Mar. 1996), pp. 223–229 in JSTOR
• de Vries, Johan. "Benelux, 1920-1970," in C. M. Cipolla, ed. The Fontana Economic History of Europe: Contemporary Economics Part One (1976) pp 1–71
• Vlekke, Bernard H. M. Evolution of the Dutch Nation (1945) 382 pp. online edition
• Wintle, Michael P. An Economic and Social History of the Netherlands, 1800–1920: Demographic, Economic, and Social Transition (Cambridge University Press, 2000) online edition
• van Zanden, J. L. The Economic History of The Netherlands 1914–1995: A Small Open Economy in the 'Long' Twentieth Century (Routledge, 1997) excerpt and text search

References