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Netherlands - Economy (Notes)

After a strong performance in the 1990s, which brought unemployment to below 3%, the Dutch economy struggled through 2002 and 2003, plagued by relatively high costs and weak domestic demand. Real GDP growth recovered to 2.0% in 2004, but fell back slightly in 2005 to 1.5% largely due to lagging corporate investment and decreased government consumption. The economy is expected to grow by 3.0% in both 2006 and 2007. Export growth slowed to an estimated 6.8% in 2005, after a 2004 rebound of 9.8%, and is expected to stay strong through 2006 and 2007.

Private consumption decreased by 1.2% in 2006, primarily due to reforms in the health care system which shifted health care spending from private to public consumption. Employment gains brought unemployment down to 5.5%, leading to projections of a 2.3% increase in private consumption for 2007. After a drop in the early 2000s, investment staged a recovery in 2005. This upward trend in investment continued into 2006 with an estimated increase of 3%. A further increase of up to 9% is projected for 2007.

In recent years, many firms in the Netherlands cited a loss of competitiveness as a major impediment to growth as unit labor costs outpaced those of their major competitors, including within the euro area. Low wage rises in 2004 and 2005 enabled firms to regain some lost ground. With many collective wage agreements signed when strong growth was not yet apparent, the 2006 growth level has not yet put upward pressure on overall wages, but wages are expected to go up in 2007 as the collective agreements come up for renegotiation. Inflation dropped to 1.2% in 2004, but increased to 1.7% in 2005. For 2006, it is again expected to drop to 1%, with projections suggesting it will return to 1.25% in 2007.

The Netherlands was one of the first EU member states to qualify for the Economic and Monetary Union (EMU). Its fiscal policy has sought to strike a balance between further reductions in public spending and lower taxes and social security contributions. After an unexpected sharp economic downturn in 2003 caused the nominal deficit to breach the 3% GDP limit set by the EMU's Growth and Stability Pact, the center-right coalition government agreed to a package of spending cuts, which helped to lower the budget deficit to 1.8% of GDP in 2004 and further to 0.3% in 2005. The government achieved a 0.6% budget surplus in 2006 and a 0.2% surplus is expected for 2007.

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 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, 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 2005 of $42.2 billion--close to 7.7% of GDP, the main contributor to a current account surplus of close to 8.8% 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 fourth-largest direct investor in the United States. Dutch accumulated direct investment in the United States in 2005 was $171 billion. The United States is the largest investor in the Netherlands with direct investment of $181 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 Organization for Economic Cooperation and Development (OECD).

Sectors of the Economy
Services account for almost three quarters of the national income and are primarily in transportation, distribution, logistics, and financial areas, such as banking and insurance. Industrial activity generates about a fourth 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 2% of GDP.

Although Dutch crude oil production is small, the Netherlands is a relatively large producer and distributor of natural gas. The Slochteren gas fields in Groningen Province in the north are among the world's larger 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 around 75 billion cubic meters, roughly half of which is exported to EU member countries.

Environmental Policy
The Netherlands is a small and densely populated country. Its economy depends on industry, particularly chemicals and metal processing, intensive agriculture and horticulture, and on its infrastructure, which takes advantage of the country's geographical position at the heart of Europe's transportation network. These factors have led to major pressure on the environment.

The National Environmental Policy Plan (NMP) sets out Dutch environmental policy. Under NMP-4, published in 2001, the government seeks to cut back on all forms of pollution by 80%-90% within one generation, meaning that by 2010, the present generation should be able to pass on a clean environment to the next one.

Although the environmental quality in the Netherlands has improved significantly, some important targets, particularly with respect to nitrogen oxide and ammonia emissions, climate change, and noise reduction, will be difficult to reach.

The Dutch Government works closely with industry and nongovernmental organizations to reach environmental targets. In order to meet the Kyoto target of reducing greenhouse gas emissions by 6% in the 2008-2012 period from 1990 levels, the government reached an agreement with industry and the energy sector on emission rights trading. In May 2006, the government told parliament it had sufficient confidence the Kyoto targets would be reached provided planned additional measures are implemented.

Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Euro Exchange Rates
Notes and Commentary: Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.

Facts at a Glance
Current Time
Ranking Positions
Euro Exchange Rates

Notes and Commentary
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.

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