Netherlands Economy

As of 2014, the Netherlands had the 17th largest economy in the world, as measured by nominal GDP. It was also one of the richest nations in the world with a per capita GDP of approximately $43,404.

As of 2014, the Netherlands had the 17th largest economy in the world, as measured by nominal GDP. It was also one of the richest nations in the world with a per capita GDP of approximately $43,404.

Historically, the Netherlands have had a prosperous economic history. The Dutch are credited with the invention of the stock market thanks to the trade of interests in the Dutch East India Company. The nation employs an open economy that focuses heavily on foreign trade. Its geographical location has also made it an important transportation hub for the European community. Thus, it is not surprising that the Netherlands was a founding member of the European Union (EU) and among the first nations to adopt its currency: the euro.

In addition to being a member of the European Union, the Netherlands also belongs to the Organization for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO).

Economic History

The Netherlands passed through many hands in early Europe. After the fall of Rome, the area was largely dominated by Nordic and Germanic nations until falling into the hands of the Spanish. The economy was largely agricultural with significant trade routes passing through the area.

In 1581, the Netherlands gained its independence from Spain and began a period of explosive economic growth. New shipbuilding techniques allowed the Dutch an enormous competitive advantage in shipping. By the 17th century, the Dutch had become a shipping and trade power in Europe. This was largely due to the rise of the Dutch East and West India Companies, who would dominate intercontinental trade with Europe for decades.

In addition to its booming shipping and trade industry, the Netherlands also enjoyed one of the earliest industrial revolutions of any nation in the world. Unlike the industrial revolution of England, France, and the US, however, the Netherlands’ focused on power generated by wind, water, and peat. This period also saw the reclamation of submerged lands, an agricultural revolution, and some of the highest standards of living in all of Europe.

By the middle of the 17th century, the Dutch enjoyed what is known as the Dutch Golden Age. Yet, this time of economic prosperity abruptly halted thanks to a combination of political and military upheavals and a number of negative economic developments that began around 1670. These events would set the Netherlands back so significantly that true industrialization would not begin again in earnest until after 1830. The Netherlands found itself caught between competing nations with ambitions of empire, both geographically and financially. Competition, blockades, seizures, and other forces combined to quickly erode the Dutch advantage in trade.

Nevertheless, the 18th and 19th centuries still bore witness to great achievements by the Dutch. These included the adoption of a unified monetary system, modern methods of tax collection, the adoption of standard weights and measures, and significant infrastructure development (including roads, canals, and railroads). The 19th Century was a time of gradual transformation for the Netherlands as it moved from a largely agrarian society to the more industrialized, middle-class society that exists today.

Germany invaded the Netherlands during World War II despite a proclamation of neutrality. Seventy five percent of the nation’s Jewish population was deported to concentration camps during the occupation, and subsequently perished. This made the Netherlands among the hardest hit Jewish communities during the war.

After the war, the retreating German forces destroyed as much as 40 percent of the Dutch means of production. An estimated 60 percent of the nation’s infrastructure had been destroyed and the economy only produced at about 27 percent of its pre-war levels. The Netherlands quickly took advantage of the Marshall Plan to stimulate the recovery of their devastated economy. One disaster after another plagued the battered nation, with hyperinflation, a housing crisis, and soaring poverty following one after the other. By the end of the 1950s, the Netherlands emerged a largely free-market economy that relied heavily on trade and a burgeoning services economy.

This led to a new “Golden Age” for the Netherlands. The nation rebuilt much of its infrastructure and saw annual economic growth between four and five percent. This lasted until the early 1970s when the economies of the world slowed in the wake of the oil crisis. Growth slowed to around two percent per year until the economy corrected again in 1985. Since that time, the economy has largely globalized, given its heavy focus on international—and particularly European—trade. Thus, ebbs and flows in the global market tend to have proportional effect on the economy of the Netherlands.

Current Economic Situation

After the global recession of 2008, the government bailed out and then partly nationalized the relatively large Dutch banking sector. This led to a drop in unemployment that reached a low of five percent by 2011, but subsequently jumped back up to 8.3 percent by May 2013. The bailout economics led to larger than expected budget deficits. To counter this, the government almost immediately implemented austerity measures in 2011.

The Netherlands’ industrial activity is predominantly related to food processing, chemicals, petroleum refining, electrical machinery, and mining and accounts for about 20 percent of the Dutch GDP. Agriculture has become highly mechanized, and the agricultural sector employs less than two percent of the national labor force. However, the highly efficient production of this sector leads to large food surpluses that find their way into the export market. The Netherlands is also the second largest producer of natural gas in Europe and ninth in the world. Tourism is also a large contributor to GDP, averaging about 5.4 percent each year.

Still, the services sector dominates the Netherlands’ economy. Services account for more than 50 percent of annual GDP, with heavy focus on transportation and shipping, distribution and logistics, and financial services like banking and insurance.

The Netherlands is home to several very large multinational corporations: including Royal Dutch Shell, Heineken, Ahold, Philips, TomTom, Unilever, Randstad, and ING. The Netherlands has attracted business over the years by creating unique taxing arrangements with multinational corporations by which these companies pay a negotiated tax rate that is usually much lower than that available anywhere else in the world. These tax rates are kept strictly confidential, but in some instances are rumored to be less than one percent.

Economic Forecast

Expansion in exports as well as broad improvements across all sectors indicates that economic recovery from the Global Recession is well underway. As a result, Standards and Poor’s improved the nation’s credit rating from “stable” to “positive” in May 2015.

Consequently, the Netherlands’ GDP should expand by 1.8 percent by the end of 2015 and continue to grow to 1.7 percent in 2016.