Economy and Trade
The Netherlands has one of the most advanced economies in the world, with a per capita income (purchasing power parity) of US$37,300 in 2006. It is home to the 16th-largest economy and the seventh-largest financial sector in the world. Financial and business services account for almost one-third of GDP, while industry and retailing together make up almost another third. Agro-food production accounts for around 10% of the economy and about 20% of exports.
In 1952, the Netherlands was a founding member of the European Coal and Steel Community, the forerunner of the European Economic Community and later the European Union. In 2002, the Netherlands was also among the 12 EU members that replaced their own individual currencies with the euro. Thus, the economy is highly integrated with the rest of the European Union. Indeed, most of the Netherlands’ trade is with other EU countries.
Economic Policy over 12 Months
The global financial crisis dominated economic policymaking in the Netherlands in 2008. Presciently, in June 2008 the International Monetary Fund (IMF) reported that the financial system in the Netherlands was proving generally resilient to the recent market turmoil, but “some pockets of weakness warrant caution.” The global financial crisis has certainly weighed heavily on the Netherlands’ financial sector. In October 2008, the government took full control of the Dutch operations of the ailing European bank Fortis in a deal worth €16.8 billion. Fortis was the first European bank to fall victim to the credit crisis.
During the same month, the government pumped €10 billion into the bank ING to help it during the financial crisis, and provided a cash injection of €3 billion to the insurer Aegon. The authorities further offered a €200 billion package of loan guarantees to Dutch banks. However, financial institutions in the Netherlands were reluctant to make use of the guarantee fund set up by the government because of fears that it could damage their reputation.
The government announced its 2009 budget in September 2008. In this, it said that it would postpone a planned rise in value added tax (a tax levied on goods and services within the European Union), and would reduce the tax burden on the corporate sector and on individuals to mitigate the impact of the global economic slowdown. However, it added that it would still aim to achieve a structural budget surplus of 1% of GDP by 2011. It would also continue to pay off public debt, which it anticipated would fall to about 40% of GDP in 2009—the lowest level in percentage terms since 1815. However, the European Commission (EC) forecast in January 2009 that the government budget would fall into deficit in 2009, reflecting a rapid slowdown in economic activity in the final months of the year (see Economic Performance).
As a member of the eurozone, the Netherlands is subject to the monetary policy of the European Central Bank (ECB), which has adopted a relatively hawkish stance on inflation. In 2008, it certainly adopted a tighter monetary stance than other central banks, such as the US Federal Reserve, which slashed interest rates in the wake of the global credit crisis. By the end of 2008, interest rates in the eurozone stood at 2.5%, while the Federal Reserve had cut its key interest rate to a range of between zero and 0.25%.
Economic Performance over 12 Months
The Netherlands has an open economy that is highly geared towards world trade and finance. Consequently, the global financial crisis that developed in 2007 and 2008, and that has led to a slump in global economic growth and trade, has had a significant impact on the Dutch economy. GDP growth fell from 3.5% in 2007 to an estimated 1.9% in 2008, and the growth that did occur was largely due to the carry-over from strong domestic demand in the second half of 2007, according to a report published by the EC in January 2009. The EC also forecast that the Dutch economy would contract by 2% in 2009, with negative growth occurring in all four quarters.
Growth was flat in the second and third quarters of 2008, and the economy is likely to have contracted in the fourth quarter. Private consumption provided only limited support in 2008—increasing inflation and rises in taxes and social premiums undermined disposable income. The recession and the financial crisis are having a negative impact on the government’s finances. The EC anticipates that a budget surplus of 1.1 of GDP in 2008 will turn into a deficit of 1.4% in 2009, reflecting the impact of automatic stabilizers and lower gas revenues as a result of lower oil prices.
In 2008, average unemployment fell from 3.9% to 3.2% (one of the lowest levels in the eurozone), but the EC anticipates that the jobless level will rise sharply in the next two years—to 4.1% in 2009 and 5.5% in 2010. Unemployment has already begun to worsen, inching up to 3.9% in the fourth quarter of 2008, from 3.8% in the previous three months. Average inflation rose to 2.2% in 2008, from 1.6% in 2007. However, it should ease to 1.9%I in 2009, according to the EC, as international prices for commodities tumble.
In 2008, the country’s external current-account surplus remained large (at 8.4% of GDP, down from 9.8% in 2007) and, according to an IMF report published in June 2008, “various approaches support the conclusion that Dutch competitiveness is satisfactory.”
Support for Inward Investment and Imports
The Netherlands Foreign Investment Agency (NFIA) is a division of the Dutch Ministry of Economic Affairs. The NFIA provides assistance to foreign companies that wish to establish, expand or reorganize operations in the Netherlands. The NFIA says it can provide help at every stage of strategic decision-making, with information, advice, and practical assistance. Services are in strict confidence, without obligation, and free of charge.
Detailed information and statistics can be provided in areas such as economics, operating costs, fiscal matters, and business locations. The NFIA service can also arrange fact-finding trips, site visits, and meetings with other companies that have chosen the Netherlands as their European base. The NFIA can offer introductions to lawyers, tax consultants, and national, regional and local organizations, as well as regional development agencies. The NFIA can also provide help to companies interested in exporting to the Netherlands.
The government is striving to improve the investment environment in the Netherlands. The corporate tax rate is 25.5%, which is well below the EU average. Dividend tax has been reduced from 25% to 15%. The Netherlands also offers participation exemption, and a 30% tax break for highly qualified foreign employees.
GDP growth: 1.9% (2008, EU est.)
GDP per capita: US$41,300 (2008, est.)
CPI: 2.2% (2008, government figures)
Key interest rate: 2% (February 2009, eurozone)
Exchange rate versus dollar: euro per US dollar—0.6494 (2008, est.)
Unemployment: 3.2% (2007)
Current account deficit/surplus US$726.9 billion (2008, est.)
Population: 16,645,313 (July 2008, est.)
Source: CIA World Factbook except where stated