Strengths And Weaknesses Of The Netherlands Economy | Altoo AG (2024)

Located in northwestern Europe with overseas territories (the islands of Bonaire, Sint Eustatius, and Saba) in the Caribbean, the Netherlands is a parliamentary constitutional monarchy, the Kingdom of the Netherlands.

As reflected in the World Economic Forum’sannual country’s competitiveness report, the country has highly developed physical infrastructure and comes in second, just after Switzerland, in the infrastructure category. The OECD’s Better Life Index shows that the Netherlands occupies 7th place in the world’s highest living standards, one place after Switzerland (Norway tops the rankings).

With a population of 17.9 million people, all living within a total area of 41,850km2—of which the land area is 33,500km2—the Netherlands is the 16th most densely populated country, with a density of 535 people per km2.

Strong Digitalisation

The Netherlands is an EU member, which means the country´s exposure to the European economy Dutch export earnings represented 31% of GDP in 2020; 13% of the exports were re-exports. High exposure to European gas prices prompts more inflation volatility when gas prices fall or increase (gas represents 38% of total energy consumption; 71% of Dutch residents heat their homes with gas).

The 2023 state of digitalization shows respectable figures. According to datareportal.com, a comprehensive study of all the latest trends in digitalization, there were 16.8 million internet users in the Netherlands. Thus, the penetration stood at 95.5%. Then, the country was home to 15.5 million social media users, equating to 88.1% of the total population. And finally, a total of 22.12 million cellular mobile connections were active in the Netherlands in early 2023, with this figure equivalent to 125.7% of the total population.

Weak green Transition

Among the weaknesses of the country are the very high level of debt of private households (223% of disposable income in 2021) and the ageing population, which means the pension system is under pressure. The 2023 OECD Economic Survey notices that sustainable growth calls for greater fossil fuel independence and advancing the green transition. “The Netherlands is set to fall short of its national 2030 target to reduce greenhouse gas emissions. To achieve emission reductions of 55% compared to 1990 levels, the government focuses on greater reductions across sectors, particularly in the electricity and industry sectors, through higher use of renewables. Basic research for the development of green innovations is not explicitly targeted by government funding. A holistic policy strategy extending beyond 2030 is missing, risking a trade-off between short-term gains until 2030 and long-term efficiency,” the survey states.

Economic Freedom and Zero Corruption

Both Switzerland and the Netherlands generally have more comprehensive social welfare systems, including universal healthcare and strong workers’ rights. The economic freedom in both countries is at a very high level. According to the 2023 Economic Freedom Index, Switzerland’s economic freedom score is 83.8, making its economy the 2nd freest in the world. The Netherlands occupies 8th place.

The Dutch economy benefits from a traditional emphasis on the rule of law and an efficient legal framework. The independent and corruption-free judicial system provides strong protection of property rights. Openness to global trade and investment is well established, and the overall regulatory and entrepreneurial environment remains transparent and efficient.