The Netherlands has performed well economically over the past fourteen years. Prosperity has substantially increased: gross domestic product (GDP) is 30% higher than in 1997. In 2010 the Netherlands was the richest country in Europe after Luxembourg in terms of GDP per capita, and was one of the few European countries that succeeded in making up some of the lag in prosperity relative to the United States. The Netherlands realised the gain in prosperity by working more efficiently – labour productivity was somewhat higher than in earlier decades – and integrating more people into the labour market. There are now around one million more Dutch people in employment than in 1997; not only reflecting the expansion in the labour force, but also the rise in labour participation, which was particularly marked among women and older workers.
The main growth engine for the Dutch economy was exports, which grew three times as rapidly as GDP. The Netherlands reaped more benefits from the closer monetary and economic integration within Europe than many other euro area countries. The introduction of the euro reduced exchange rate uncertainty and the enlargement of the internal market offered extra export opportunities. Thanks in part to its favourable geographical location, the Netherlands in 2011 is an essential crossroads in the briskly growing trade between Europe and other regions and an attractive location for head offices. The trade surplus of on average 7% of GDP implies that Dutch enterprises are holding their own in competitive foreign and domestic markets.
The strong Dutch performance could partly be attributed to policy efforts to create a more fertile economic climate. The stable fiscal policy enhanced administrative calm and facilitated more predictable government. Policymakers also reduced taxes and social security contributions, strengthened market forces and expanded the scope for entrepreneurship. Higher labour participation resulted from changing preferences – e.g. more women now keep working after they have children – but also from targeted reforms. The past fourteen years brought: an improvement in childcare facilities; options for (extended) leave; a thorough review of arrangements for unemployment, incapacity for work benefits and early retirement; and new legislation on flexible contracts and working hours. Compared to 1997, the current labour market is far more dynamic and flexible.
Flexibility is badly needed because all the prosperity was countered by more pronounced volatility. As the chart shows, the Dutch economy experienced high peaks and deep troughs. The latter half of the 1990s witnessed the longest upward phase in decades, with growth reaching close on 6% at the height of the boom. The surging house and equity prices propelled consumption growth to around 6% – whereas it has not exceeded 2% since then. In 2002/2003 the Dutch economy came to a grinding halt when the ICT bubble on the global equity markets burst and growth in world trade fell steeply. It then took until early 2006 before Dutch growth again climbed above 3%. The slowdown in Dutch growth during the credit crisis was even sharper than at the start of this millennium. Calculated from the peak just before the credit crisis to the trough in the first half of 2009, Dutch growth slid back by almost ten percentage points, from 4.8% in the fourth quarter of 2007 to -4.8% in the second quarter of 2009.