Netherlands flag Netherlands: Economic and Political Overview

The economic context of the Netherlands

Economic Indicators

The Netherlands is the sixth-largest economic power in the Eurozone and the fifth-largest exporter of goods. The country is very open to trade and consequently to the global economic conjuncture. Following strong growth in the post-pandemic years (+4.3% in 2022), the Dutch economy cooled down in 2023, with a GDP increase limited to 0.6% (IMF) amid a decline in export volumes and in actual consumption spending as households adjusted to the higher price levels. Throughout 2024 and 2025, growth should gradually accelerate thanks to a further decrease in inflation, combined with robust wage growth. With demand from key trading partners stabilizing, the contribution from net trade is also predicted to improve. Additionally, increased public consumption and investment are anticipated to contribute to overall growth. On the downside, tightening financial conditions and persistent labor shortages are likely to exert pressure on business investment growth in the coming years. Overall, the annual growth forecast is 1.2% for 2024 and 1.5% for 2025 (IMF).

In recent years the government’s fiscal policy has been expansionary; nevertheless, the Dutch public finances remained sound, recording budget surpluses. The trend inverted as a consequence of the fiscal measures taken to contain the Covid-19-induced crisis and then the effects of high inflation prompted by the conflict in Ukraine. In 2023, the general government deficit reached 1.9% of GDP driven by a package of measures to mitigate the impact of high energy prices (estimated at around 1% of GDP), partly counterbalanced by higher-than-expected revenue from corporate income tax, as well as lower public investment. The deficit is projected to hover around 2.5% of GDP in the forecast horizon, driven by an increased defence budget, and growing expenditure on interest, social benefits, and public investments. Despite the increase in expenditure, continued high nominal GDP growth contributed to a reduction in the government debt-to-GDP ratio, from 50.1% in 2022 to 49.5% in 2023. The IMF expects the ratio to further decline to 48.7% by 2025. After peaking in 2022, inflation came down sharply to 4.2% in 2023, thanks to a significant drop in energy prices. Due to the continued strength of wage growth and a robust labor market, HICP inflation, excluding energy and food, should gradually decrease closer to the ECB’s target over the forecast horizon (around 2.2% by 2025).

The Netherlands presents a very high income per capita, which is distributed in a relatively equal manner. The GDP per capita is above the EU average and was estimated at USD 73,317 in 2023 (PPP – data IMF). The Dutch labour market remains tight, with the unemployment rate standing at 3.7% in 2023, when nominal wages have been growing considerably (+6.2% according to the EU Commission). On the back of a slowing economy, the IMF expects the unemployment rate to increase slightly to 4.1% and 4.5% in 2024 and 2025, respectively.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 1,010.191,092.751,157.911,207.531,254.38
GDP (Constant Prices, Annual % Change) 4.30.61.21.51.6
GDP per Capita (USD) 57,42861,77065,19567,79870,232
General Government Balance (in % of GDP) 0.7-1.9-2.5-2.6-2.6
General Government Gross Debt (in % of GDP) 50.149.548.648.749.0
Inflation Rate (%) n/a4.04.22.22.0
Unemployment Rate (% of the Labour Force) 3.53.74.14.54.7
Current Account (billions USD) 93.1183.0687.7290.6392.37
Current Account (in % of GDP) 9.27.67.67.57.4

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

The agricultural sector represents 1.5% of the country's GDP and employs 2% of the active population (World Bank, latest data available). This sector produces high yields, which is due in part to the intensive farming of arable land. Nearly 60% of the production is exported, either directly or through the food industry. This makes the Netherlands the second-largest exporter of agricultural products in the world (after the U.S.). The main crops exported are cereals, potatoes and horticultural products. The Netherlands is also the largest flower exporter in the world. The number of companies active in the sector stands at 52,107 (Agricultural Census). According to the latest data by CBS, in 2023, the Dutch agricultural sector increased by 6.7% compared to one year earlier, whereas the output in volume decreased by 2.1%. Animal output decreased slightly (-0.7%), while crop production saw a relatively sharp contraction at 3.3%.

Industrial activity generates around 19.5% of the Dutch GDP, mainly through food processing, the petrochemical industry, metallurgy and the transport equipment industry. The Netherlands is also one of the largest producers and distributors of oil and natural gas. The secondary sector employs 14% of the workforce. The World Bank estimates that the manufacturing sector alone accounts for 11% of the country's GDP. Data by CBS show that the average daily output generated by the Dutch manufacturing industry decreased in the first ten months of 2023 (down by 11.1% in October).

Services account for over 68.7% of national revenue and employ 84% of the workforce. The services sector is focused mainly on transportation, distribution, logistics, banking and insurance, water engineering and new technologies. The country is also Europe's leading service provider in ocean freight, which is not surprising as its economy largely depends upon exports. The Dutch banking sector plays an important role in the economic functioning of the country and has a relatively large size when compared to the GDP, its assets accounting for 330% of GDP in 2022, with the five largest banks accounting for about 85% of the total assets of the sector (European Banking Federation). The contribution of tourism to the Dutch economy rose to 3.7% in 2022 (from 2.5% one year earlier), with tourist spending amounting to nearly EUR 96 billion (of which EUR 34.5 billion spent by foreigners), exceeding pre-pandemic levels.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.3 13.9 83.8
Value Added (in % of GDP) 1.7 18.9 68.8
Value Added (Annual % Change) -0.6 2.9 5.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
76,8/100
World Rank:
16
Regional Rank:
9

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
8.04/10
World Rank:
10/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Sources of General Economic Information

Ministries
Ministry of Social Affairs and Employment
Ministry of Economic Affairs and Climate Policy
Ministry of Infrastructure and Water Management
Ministry of Finances
Statistical Office
Central Bureau of Statistics
Central Bank
Dutch National Bank
Stock Exchange
Amsterdam Exchange (AEX)
Economic Portals
 

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Latest Update: February 2024