The nominal national competitiveness indicator (NCI) of the Netherlands has been relatively stable since 2003. In August 2006, it was a mere 1% up on a year earlier.
The Netherlands’ competitive position is determined largely by two factors: exchange rate movements (against the domestic currency) and the level of inflation relative to other countries. A fall in the index of the nominal NCI, i.e. the weighted development of the exchange rate against the Netherlands’ 23 main trading partners, reflects an improvement in the competitive position.
The Chart below shows up three clear trends: a declining NCI until end-2000, then an increase lasting nearly three years, and relatively stable movements since.
These trends were accounted for mainly by the exchange rate movements of the US dollar, sterling and the Japanese yen. The relative development of inflation initially weakened and then reinforced the long-term movements of the NCI. With Dutch inflation keeping pace with the rest of the world since 2003, the real NCI, too, is subject to a more or less horizontal movement.