Overview of the Netherlands Economy

Introduction The Netherlands is one of the states forming the European Union. It is exhibiting economic growth and stability due to foreign trade. In the European Union, the Netherlands ranks 5th in economic status and development because it has stable industrial development, minimal inflation, low unemployment rates, considerable surplus in trade, and it plays a central role in transportation in Europe. The Netherlands has well established industries in petroleum refining, chemicals manufacturing, food processing, and electrical machinery.Advertising We will write a custom essay sample on Overview of the Netherlands’ Economy specifically for you for only $16.05 $11/page Learn More These industries contribute significantly to economic growth and development in the country. Moreover, the Netherlands depends on agriculture as an economic activity that contributes significantly to the gross domestic product (GDP). According to Organization for Econom ic Corporation and Development (OEDC), mechanization in the agricultural sector enables the Netherlands to employ about 2.5 per cent of labor force and generates surplus products for exports (9). With the population of approximately 16 million, the Netherlands has the potential to sustain its economic growth amidst intermittent global economic crises. In a bid to enhance understanding of the Netherlands’ economy, this essay provides an overview in aspects such as GDP growth, inflation trends, unemployment rates, major industries, exports versus imports, and trading partners. GDP Growth Over the last few decades, the GDP of the Netherlands has been fluctuating in response to prevailing conditions of the world economy. The Netherlands is very sensitive to the world economy because it relies mainly on trade, which is subject to international factors of trading. In 1970s and 1980s, the Netherlands experienced economic crisis that slowed its GDP growth and caused economic stagnati on. In response to the economic crisis, the government put appropriate measures in place to reduce the impact of global economic crisis. â€Å"Emerging from deep recession and high unemployment in the early 1980s, the economy shifted to a pace of growth more rapid than that in neighboring economies, and posted a rise in employment close to that in the United States† (Bakker, Halikias, Martijn, and Watson 1936). The outstanding economic performance occurred due to policy reforms, which tighten public expenditure, enhance fiscal regulation, and control labor markets. Since 1988, the GDP of the Netherlands showed an average growth rate of 0.6 per cent, while peaking during 1996 to 2 percent. In the 21th century, the GDP growth rate stagnated at below 1.0 per cent and experienced growth rate of -2.2 per cent in March 2009. The negative growth rate of the GDP occurred due to global economic crisis of 2008, which shook the world markets tremendously. As the Netherlands relies on fo reign trade, global economic crises have considerable impact on its economy.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The European Commission posits, â€Å"In the second half of 2011, the Dutch economy experienced a sharp downturn, recording negative q-o-q growth of 0.4 per cent in the third quarter and 0.7 per cent in the fourth quarter† (31). The sharp decrease in the GDP growth rate in 2011 implies that the Netherlands is battling with impacts of recession on the economy. In 2012, the Netherlands’ economy still experienced negative GPD growth rate due to reduction in consumer confidence. Projections show that the GDP is going to increase gradually due to measures that the government has put in place to cushion itself from global economic crises. The government has carried out reforms in sectors such as labor markets, consumer markets, fiscal sector, agricultural sect or, tourism, and manufacturing industries to boost its GDP growth in the coming years. â€Å"The economy has benefited from globalization via stronger international trade and higher foreign direct investment† (OECD 8). Globalization compels companies to look for new markets while becoming innovative in production of new products. Additionally, regulation of fiscal markets has a significant impact in improving the stability of an economy against turbulent global economic dynamics, which experience periodic recessions. Therefore, projections show that the Netherlands GDP will grow gradually and by 2015, it should be having a growth rate of about 2 per cent, the way it peaked in 1996. Inflation The economy of the Netherlands has experienced marked inflations during the past decade. The trends of inflation have been in tandem with global inflation driven by the variation in oil prices. In 2001, the inflation rates increased to about 9 per cent and then decreased to about 3 per ce nt in 2008. Fluctuations in inflation rates have considerable impact in the economic growth and development because they affect the stability of an economy despite the fact that necessary fiscal measures are in place to check variation. Owing to the global economic crisis of 2008, the Netherlands continued to experience its impacts as reflected in the 2011 inflation. In response to the global economic crisis, â€Å"domestic demand slowed as business investments were scaled back and private consumption declined†¦inflation edged up under the influence of higher energy prices, reaching 2.5 per cent in early 2012† (OECD 9). Increase in oil prices causes considerable inflation because the Netherlands depends on petroleum products as a source of energy in transport and manufacturing industries. Projections indicate that inflation rates are going to decline and stabilize following reforms that the government has initiated. Regulation of consumer markets, enhancement of internat ional trade, and stabilization of oil prices are some of the reforms that will reduce and stabilize inflation rates at normal levels, which are in tandem with the European Union states.Advertising We will write a custom essay sample on Overview of the Netherlands’ Economy specifically for you for only $16.05 $11/page Learn More The European Commission notes, â€Å"Harmonized Index of Consumer Prices (HICP) inflation is expected to decline in 2011 to 2.0 per cent on average in 2012, mainly as a result of subdued domestic demand† (31). As the Netherlands is encroaching into world markets and gaining large market share, predictions show that inflation rates will decline and stabilize for many years, unless global economic crises shake the markets and cause destabilization again as experienced in 2008. Unemployment Economic stability that the Netherlands experienced in the past decades has enabled it to reduce the rate of unemployment. Across Europe, the Netherlands prides in having one of the lowest employment rates in the late 20th century. As Bakker, Halikias, Martijn, and Watson point out, â€Å"Emerging from deep recession and high unemployment in the early 1980s, the economy shifted to a pace of growth more rapid than in the neighboring economies, and posted a rise in employment close to that in the United States† (1936). Owing to economic growth that stabilized over a long period, the Netherlands has been in apposition to create more job opportunities, which lead to a significant decline in unemployment rates in the late 20th century. Currently, the Netherlands has the highest employment rates given that the economy is stable and is growing gradually in spite of economic challenges that threaten it growth. OECD notes, â€Å"The Dutch labor market has been one of the strongest in the OECD, characterized by low unemployment and high employment rates† (28). Moreover, the labor market shows participation rate of 75 per cent by female workers, thus making the Netherlands to rank 9th in the OECD in female participation in labor force. Projections indicate that the labor market will reap significant benefits in the global labor markets due to globalization factors that seem to favor the Netherlands. Major Industries Transportation and agricultural industries dominate the industrial sector of the Netherlands. In the transport industry, the country has an extensive system of transport on the sea and land. Rotterdam, the largest seaport in Europe, provides massive transport of goods in and out of Europe through the sea. Rotterdam is a gateway to the European continent given that a significant amount of goods both exports and imports pass through the seaport. It has the capacity to hold cargo of about 430 million tons per year, thus contributing to the development of trade and shipping industry.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Moreover, rail and road transport has developed to Rotterdam, which has opened Europe for entry and exit of goods. In transportation, â€Å"containers mainly go by road transport (57 per cent), followed by inland shipping (33 per cent), and rail transport (10 per cent), which indicates the Netherlands has elaborate transport network† (OECD 45). Thus, European countries depend on the Netherlands’ transport system in exporting and importing goods through Rotterdam. Agricultural industry is one of the largest industries in the Netherlands. The agricultural sector has a significant contribution to the GDP because it provides raw materials to the food processing industries, and consequently increases exports. Additionally, the petroleum industry has marked impact on the economic growth and development because it provides energy to industries and generates petroleum products for exports. Smidt and Wever assert that the petroleum industry has great significance to economic gr owth and development because it is under the influence of international fuel prices, which change intermittently in response to global market prices (21). Currently, the Netherlands is technically a hub of oil and natural gas, where energy industries across the world converge and transact their businesses. Exports and Imports The Netherlands has reaped considerable benefits from exports of goods in its major industries such as agriculture, petroleum refining, food industries, and transport industry. OECD notes, â€Å"The Dutch export market performance has been relatively good with an overall gain in the export market shares over the past decades, in contrast to the falling export market shares experienced in many other OECD countries† (14). The seaport of Rotterdam positions the Netherlands strategically in the world markets thus allowing it to export its goods and services conveniently. In the aspect of imports, the Netherlands benefits from cheap goods and services that em anate from developing countries, which have emerging economies. The Netherlands imports goods such as crude oil, natural gas, pharmaceutical products, chemicals, clothing, and machineries (Department of Foreign Affairs and Trade 1). Since the Netherlands has fewer imports than exports, its GDP has been growing gradually, except in times of economic crises caused by escalating oil prices. Therefore, economic growth and development hinges on the major export products that leading industries produce in the Netherlands. Trading Partners Major trading partners of the Netherlands are Belgium, the United States, China, Australia, France, and Japan. The major products that the Netherlands exports to these trading partners include machinery, petroleum products, processed foodstuffs, chemicals, and electronics. In contrast, the major goods that its partners trade in include clothing, crude petroleum, pharmaceutical products, machinery, and foodstuffs. In the multilateral relationships, the Ne therlands has made significant economic gains. Oosterbaan and Windt state that openness to international markets is a considerable factor that determines economic growth and development of a nation (31). In this view, many trading partners have enabled the Netherlands to improve its economy through international trade. Assessment of Economic Prospects Evidently, the Netherlands is exhibiting stable economic growth and development because the government has made significant economic reforms. The economic reforms aim at stabilizing labor markets, expanding international market share, regulating fiscal markets, and enhancing multilateral relationships. Moreover, the strategic location of the Netherlands in Europe enables it to link up with many countries, and thus it is a business hub in Europe. Since the Netherlands has elaborate transport system, it serves the entire Europe by connecting it to international markets. Specifically, the seaport of Rotterdam plays a central role in stimu lating economic growth in the Netherlands because it allows the passage of imported and exported goods. The development of international trade is majorly a consequence of Rotterdam because it accommodates about 430 tons of cargo annually. Conclusion The Netherlands has a relatively stable economy when compared to other European states as it ranks 5th in economic growth and development. Minimal inflation rates, low unemployment rates, high GDP growth rate, and stable industrial development characterize the economy of the Netherlands. The country has well established industries in agriculture, petroleum refining, chemicals manufacturing, food processing, and electrical machinery. The industries have enabled the country to generate high innovative products for exports, which have contributed to increased GDP, and consequently economic growth. Trading partners such as Germany, the United States, China, Japan, France, and Australia have enabled the country to enhance its international li nks, which are essential in trading. Overall, projections show that the economy of the Netherlands will continue to increase in the coming years due to economic reforms that the government has undertaken. Works Cited Bakker, Bas, Ioannis Halikias, Jan Martijn, and Maxwell Watson. The Netherlands:  Transforming a market economy, New York: International Monetary Fund, 1999. Print. Department of Foreign Affairs and Trade 2011, The Netherlands: Facts Sheet. PDF File. Web. European Commission 2012, Interim Forecast: Economic and Financial Affairs. PDF File. Web. OECD. OECD Economic Surveys: Netherlands 2012. London: OECD Publishing. 2012. Print. Oosterbaan, Maaike, and Nico Windt. The determinants of economic growth, New York: Springer, 2000. Print. Smidt, Marc, and Egbert Wever. An industrial geography of the Netherlands: An  International perspective, London: Taylor Francis, 1990. Print. This essay on Overview of the Netherlands’ Economy was written and submitted by user Legend Sanford to help you with your own studies. 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