info@ceoworld.biz
Saturday, April 13, 2024
CEOWORLD magazine - Insights - Netherlands

CEOWOLRD Header

Netherlands

Verified
Netherlands Flag

GDP: $991.1 billion
Population: 17.7mn 
Form of state: Constitutional Monarchy
Head of government: Mark Rutte 

Strengths

  • Solid economic fundamentals, growth will gradually recover (still well above prepandemic levels)
  • Labor market remains tight, t with a low unemployment rate and high vacancies
  • Open economy, characterized by high living standards
  • Well-developed infrastructure

Weaknesses

  • Political fragmentation and long negotiations to form the ruling coalition
  • Housing crisis to be tackled
  • Very urgent green transition, especially independence from fossil fuels
  • Concerns about cost-of-living crisis have not disappeared
  • Monetary policy tightening impact on the financial sectors requires close monitoring

Economic overview

The economy of the Netherlands has contracted for three consecutive quarters in 2023 and is expected to remain subdued in the upcoming quarters. It is projected that the GDP growth will gradually recover from the second quarter of 2024, with an overall GDP growth of 0.6% in 2024, following a modest 0.2% growth in 2023.

Despite a 5.8% GDP growth compared to the end of 2019, which is higher than the Eurozone average of 3.0%, the Netherlands’ faster post-Covid-19 rebound is now narrowing compared to its European counterparts. High levels of uncertainty and surging prices have impacted private consumption, leading to reduced consumption behavior among households and corporates.

Net trade and investment have remained volatile in recent quarters. Inflation pressures in the Netherlands have decelerated significantly, following one of the highest rates in the Eurozone in October 2022. The prices of energy, including gas, electricity, and district heating, have significantly impacted inflation in the country due to soaring prices in late 2022. With the prices easing and strong wage growth, there will be some breathing room for private consumption, which is expected to gradually resume in 2024-25.

The labor market in the Netherlands is currently strong and in high demand. Many companies are looking for workers, while there are few job seekers available, resulting in record-high vacancies. Various sectors such as ICT, construction, healthcare, and education are experiencing a significant shortage of staff. Due to the high inflation environment and labor market tightness, there has been a sharp rise in wages. Furthermore, the government increased the minimum wage by 10.15% on 1 January 2023, taking a positive step for the lowest-income earners. Looking ahead, the disinflationary pressures are expected to ease any fears of a wage-price spiral in the Netherlands.

Consumer sentiment is gradually recovering from historic lows, while business confidence remains weak. The Draft Budgetary Plan states that the government deficit is expected to be 2.4% of GDP in 2024, up from 1.5% in 2023. This increase is due to growing expenditure on social benefits and defense, as well as an increase in public investments. However, as the government formation talks are still ongoing and a right-wing ruling party is likely, we cannot rule out the possibility of a further deterioration in the government deficit over the next few years.

Dutch election results surprised with far-right party in the lead

Following political fragmentation in the Netherlands, the process of forming the next government is expected to take months of negotiations. The country held elections in November 2023 after the former government led by long-serving Prime Minister Mark Rutte collapsed in early July. This was due to a clash between the four parties of the ruling coalition over an immigration bill aimed at reducing asylum seekers. In a surprising turn of events, Wilders’ Party for Freedom PVV won the election, obtaining 37 out of the 150 seats. However, in order to govern, the PVV would need to form a coalition with at least two other parties.

During the 2023 electoral campaign, migration and housing were the primary issues that were discussed. The centrist and right-wing parties are confident in reducing or capping the number of migrants allowed in the country per year – including asylum seekers, labor migrants, and students. The structural lack of housing has also re-emerged as a hot topic, given the further push to demand. To address the issue of availability and affordability of both rental and owner-occupied homes, the previous government implemented the Housing Construction Policy program. One of its objectives is to build at least 981,000 dwellings up to 2030, despite increasing challenges stemming from higher construction costs and rising interest rates.

In addition, the new government will have to tackle climate policy and the issue of nitrogen emissions. The Netherlands is the second-largest agricultural exporter worldwide, and that’s why it emits large amounts of nitrogen due to a dense population and heavy traffic. All major parties have promised to halve (or cut significantly) emissions by 2030. However, the new ruling coalition will have to reach an agreement on which sectors to prioritize in the coming years.

Despite a decline in inflation, concerns over the cost of living crisis still remain. In October 2023, the price growth entered negative territory and reached its lowest level since September 2016. This was caused by strong base effects from the peak reached in September and October 2022, which was over 14%. Additionally, declining energy prices contributed to this trend. However, households are still facing a loss of purchasing power as the prices of food and alcohol remain high. Negotiated wages are lagging behind, but they are expected to grow by more than 5% in both 2023 and 2024. The government should focus on wage-price-setting dynamics in response to high inflation.

The Netherlands will receive €4.7 billion in grants (0.8% of GDP) from the NGEU funds. The country did not apply for EU loans as its cost of borrowing remains low. The Dutch plan is structured around six pillars: promoting the green transition, accelerating the digital transformation, improving the housing market with a focus on building renovation, strengthening the labor market, pensions and future-oriented education, strengthening the public health sector and pandemic preparedness, and tackling aggressive tax planning and money laundering.

As a result of a decline in Russian gas exports to Europe, the Netherlands is in a favorable position due to its liquefied natural gas (LNG) import capacity and a low dependency on Russian gas. However, because it is a significant transit and storage hub, the country is under pressure to assist with gas supply for other countries, including Germany. (*updated)

CEOWORLD magazine - Insights - Netherlands