Netherland Economy

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NETHERLANDS
GDP (2004 est.): $583 billion.
GDP real growth rate (2004 est.): 1.25%.
GDP per capita (2004 est.): $35,768.

Budget: Income .............. $163 Billion
Expenditure ... $170 Billion

Main Crops:
Grains, potatoes, sugar beets, fruits, vegetables; livestock .
Natural Resources:
Natural gas, petroleum, fertile soil.

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

NATIONAL GNP
Dutch economic policy is geared chiefly toward sustained and environmentally sustainable economic growth and development by way of fiscal consolidation, labor and product market reforms, economic restructuring, energy conservation, environmental protection, regional development, and other national goals. Successive governments have combined rigorous and stable macroeconomic policy, with wide-ranging structural and regulatory reforms. Sharp cuts in subsidy and social security spending combined with consistent wage moderation, deregulation and privatization of former state-owned companies, and increased competition have helped the Dutch economy to achieve sustained economic and employment growth.


After the center-right previous cabinet fell in October 2002, general elections in May 2003 resulted in a new coalition government consisting of CDA, VVD, and D66. The government program for its four-year term in office stresses the need for reforms and more spending on security, healthcare, education, and transport infrastructure, while maintaining budget discipline and expanding the labor market. The two main challenges that are facing the Dutch government during its four-year term in office are to increase the economic growth potential by boosting employment and productivity growth and by keeping public finances on a sustainable path. The government recognizes the need for further structural reforms emphasizing product market flexibility and the creation of more dynamic and deregulated capital and financial services markets, which would help boost the seriously eroded Dutch competitive position on European Union (EU) and world markets.

After several years of sustained non-inflationary growth and low unemployment, the macroeconomic performance of the Dutch economy has deteriorated markedly. In 2003, a slowdown in the global economy and erosion of the Dutch competitive position dampened foreign demand and investment, while bearish stock markets and layoffs announced by many multinationals resulted in a sharp drop in household and business confidence. The global growth slowdown affected all effective demand components, and led GDP growth in 2003 to drop by 0.8 percent after slumping to just 0.2 percent in 2002.

Despite an expected recovery of world trade growth in the latter part of 2004, the outlook for the Dutch economy remains tepid. Further loss of Dutch competitive position resulting from appreciation of the euro vis--vis the dollar is expected to dampen exports and reduce output. The Organization for Economic Cooperation and Development in Europe (OECD) predicts Dutch GDP growth to recover to one percent in 2004 and accelerate to 2.0 percent in 2005. The official (Bureau of Economic Policy Analysis CPB) forecast expects economic growth in 2004 to recover by 1.25%, followed by 1.5% expansion in 2005. The CPB expects a sharp drop of consumer confidence (to the lowest level since the 1980s), and erosion of real disposable incomes to choke consumer spending as a major growth engine. Poor macroeconomic demand and worsening price competitiveness are at the root of deteriorating profit margins and a forecast drop in non-residential investment. A strong recovery of foreign demand (up close to seven percent in 2004 and 2005) will have to compensate for sluggish domestic demand (and sharply lower public spending) and pull the economy out of current recession in the latter part of 2004.

Reflecting the economic downturn, employment growth has come to a grinding standstill, while the number of redundancies is growing. These unfavorable labor market developments are expected to raise the level of unemployment to well over 6% of the labor force in 2004. After peaking at close to 5% in 2001, inflation eased to 2.1% in 2003, and is expected to soften further to 1.25% in 2004 and 0.75% in 2005. Current price and wage developments show no indications of an imminent deflation risk.

The Netherlands was one of the first EU member states to qualify for the Economic and Monetary Union (EMU). Fiscal policy aims to strike a balance between further reducing public spending and lowering taxes and social security contributions. The unexpected sharp economic downturn has tipped the fiscal balance and catapulted the nominal deficit from 1.6% of GDP in 2002 to 3.3% in 2003. Since the level of public debt has exceeded the debt criteria, the center-right coalition government has committed itself to budget measures that will have to move the fiscal deficit back to the deficit ceiling mandated by the EMUs Growth and Stability Pact in 2005. The stock of public debt is forecast to fall from a high of 63.1 percent of GDP in 1999, to 58.1 percent in 2004.

The Netherlands is the largest net contributor to the European Union with total contribution to the EU growing to well over 3 billion euro (0.57 percent of GDP) in 2003. Per capita contribution to the EU in 2003 grew to close to 200 euro.

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 41% 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 and services trade, continued to have a strongly positive balance of goods and services trade for 2003 of $27.4 billion--close to 5.3% of GDP, the main contributor to a current account surplus of close to 4% 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 2002 was $ 155 billion. The United States is the largest investor in the Netherlands with direct investment of $ 145 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 about half of the national income and are primarily in transportation, distribution, logistics, and financial areas, such as banking and insurance. Industrial activity generates more than a third of the national product and is dominated by the metalworking, oil refining, chemical, and food processing industries. The agriculture and fisheries sector and traditional Dutch activities account for some 3% of GDP.

Although Dutch crude oil production is small, the Netherlands ranks among the largest producers and distributors of natural gas. The Slochteren gasfields in Groningen Province in the North are among the world's largest-producing natural gas fields. Total proven reserves of natural gas situated on the mainland currently amount to about 2 trillion cubic meters. Roughly 80% is accounted for by reserves on the mainland, the remaining 20% accounted for by relatively small deposits on the North Sea continental shelf. Current gas production is running at an annual average of close to 80 billion cubic meters, roughly half of which is exported to EU member countries. General government revenues from royalties on the production of gas and oil totaled about $ 2.6 billion (0.5 % of GDP) in 2003.