Economic and Political Overview

flag Netherlands Netherlands: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

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) 1,010.191,117.101,142.511,177.591,223.05
GDP (Constant Prices, Annual % Change) 4.30.10.61.31.9
GDP per Capita (USD) 57,42862,71963,75065,31667,445
General Government Balance (in % of GDP) 0.6-0.7-1.7-1.8-2.5
General Government Gross Debt (in % of GDP) 50.147.247.748.248.9
Inflation Rate (%) 11.64.12.72.12.0
Unemployment Rate (% of the Labour Force) 3.53.63.94.24.5
Current Account (billions USD) 93.66113.57104.23104.11106.87
Current Account (in % of GDP) 9.310.29.18.88.7

Source: IMF – World Economic Outlook Database, Latest data available.

Note : (E) Estimated data

 

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 data available.

 

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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

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
King: Willem-Alexander (since 30 April 2013) - hereditary
Prime Minister: Mark Rutte (since 14 October 2010) - serving as prime minister in a caretaker status
Next Election Dates
First Chamber: May 2027
Second Chamber: November 2027
Current Political Context
The Netherlands conducted unplanned early general elections on November 22, 2023, to choose the members of the House of Representatives. Originally scheduled for 2025, the snap election was prompted by the collapse of the fourth Rutte cabinet on July 7, 2023, attributed to differences over immigration policies among the coalition parties—namely, the liberal VVD, the liberal-centrist D66, the center-right CDA, and the conservative CU. The coalition was the fourth in a row under the leadership of Rutte since 2010. Prime Minister Mark Rutte, the incumbent leader, declared his decision not to lead his party in the election and announced his retirement from politics.
Following the election, the process of cabinet formation commenced to determine the parties that would come together to constitute the coalition government. However, as of January 2024 no coalition was yet formed, hence Mark Rutte is serving as prime minister in a caretaker status until a new prime minister is named.
The three parties/alliances who obtained the most seats were the nationalist Party for Freedom (37 seats, compared to 17 in the previous election), the GroenLinks–PvdA alliance between the Greens and the Labour Party (25 seats, with Frans Timmermans, Vice-President of the EU Commission who stepped down to become candidate as leader), and conservative-liberal People's Party for Freedom and Democracy (24 seats).
Main Political Parties
The Netherlands has a two-tier parliament divided into two chambers. The main parties/alliances include:

- Party for Freedom (PVV): right-wing, nationalist, known for hard stands on immigration. The party, led by Geert Wilders, obtained 37 seats of the 150-seat parliament, more than doubling their seats from the previous election in 2021
- GroenLinks–PvdA: alliance between the Greenleft (GL - centre-left, eco-socialist and anti-capitalist political party) and the Labour Party (PvdA - centre-left, social-democratic party)
- People’s Party for Freedom and Democracy (VVD): centre-right, based on free market ideas, liberal
- New Social Contract (NSC): centre to centre-right, Christian democracy. A new party that obtained 20 seats in the 2023 election
- Democrats 66 (D66): centre, progressive-liberal and radical-democratic political party
- Farmer–Citizen Movement (BBB): centre-right, agrarian, soft Euroscepticism
- Christian Democratic Appeal (CDA): centre, Christian democrats
- Socialist Party (SP): left-wing, extremely socialist
- DENK: centre-left, minority rights, identity politics
- Party For The Animals (PvdD): environmentalism, animal rights, soft-euroscepticsm
- Forum For Democracy: national conservatism
- Reformed Political Party (SGP): Christian right, social conservatism
- ChristianUnion (CU): centre, orthodox reformed political party with centre-left ideals
- Volt Netherlands (VOLT): centre, it is the Dutch branch of the political movement Volt Europa
- JA21: right to far right, conservative liberalism.
Type of State
The Netherlands are a constitutional monarchy based on parliamentary democracy.
Executive Power
The Chief of State is the King, whose role is cerimonial. Following parliamentary (lower house) elections, the leader of the majority party or of a majority coalition is usually appointed Prime Minister (head of the Government) by the Monarch to serve a four year term. The Council of Ministers is appointed by the monarch on recommendation of the Prime Minister.
Legislative Power
Legislative power is bicameral. The parliament is called States General and consists of two chambers: the First Chamber (Senate - upper house, 75 members indirectly elected) and the Second Chamber (House of Representatives - lower house, 150 members directly elected). Members of both chambers serve a four-year term. The Government has the right to dissolve the parliament, either one or both of the chambers.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
6/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
1/7
Civil Liberties:
1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
The summary of the EU’s economic response to the COVID-19 pandemic is available on the website of the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) in the Netherlands, please consult the country's dedicated section in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

 

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Latest Update: July 2024