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The worldwide economic slowdown that started in 2001
continued in 2002.
In the Netherlands the economy was practically at a standstill. The pace
of economic growth was the slowest in more than 20 years at just 0.3
percent. Production levels in industry and trade were lower than in 2001.
The performance of the metal and electrical engineering industries was
particularly weak. However, the level of output in the oil, chemicals and
rubber industries and the food industry was higher. In agriculture,
construction and financial and business services output remained roughly
the same as in 2001. Production was also lower in the hotel, restaurant
and catering sector, the temporary employment branch and the banking
industry. The principal contribution to growth in 2002 came from a steep
rise in government consumption of 3.8 percent and a more modest increase
in household consumption of one percent. By contrast, investment declined
by 3.7 percent and exports fell by three percent. Inflation averaged 3.5
percent in the Netherlands in 2002.
Government consumption
As in 2001 government consumption rose faster than other categories
of expenditure at 3.8 percent and was consequently the engine of economic
growth. Spending on health care increased sharply, while public
expenditure on education, pubic administration and infrastructure was also
higher. Government investment slowed significantly in 2002.
Consumption by households
The consumption by households increased by one percent in 2002,
which was fractionally less than in 2001. The increase in consumption was
mainly due to purchases of durable goods. Households also spent more on
food, drink and tobacco, the Internet, calling from mobile telephones and
holidays in 2002, but less on clothing, shoes, home furnishings, in bars,
restaurants and cafes and on financial and business services. Government
spending on public services, medical care and education, which also
benefits households, rose strongly in 2002.
Investment
Investment declined by 3.7 percent in 2002. This steep fall was due
in part to overcapacity caused by the slow growth of production and low
profits and is reflected in the fixed assets of companies. Dutch
entrepreneurs are pessimistic about the economic outlook for 2002 and the
succeeding period. Investment by Dutch companies in computers, machines
and installations, company cars and aircraft fell particularly sharply in
2002. There was also less investment in buildings and dwellings.
Investment in infrastructure remained the same as in 2001. Income from
foreign investment declined. Corporate solvency is relatively low, which
meant that investments were difficult to finance from equity capital.
International trade
Dutch trade in goods and services was dealt a serious blow in 2002.
The volume of both exports and imports was lower than in 2001. Exports
declined by three percent to 235 billion euros and imports by six percent
to just over 203 billion euros. The fall-off in the value of imports and
exports is partly explained by the fact that prices fell slightly in 2002.
The export and import figures were also heavily influenced by the steep
drop in re-exports. These are exports of imported products, such as
computers and peripherals, which undergo some form of processing in the
Netherlands before leaving the country again. Exports of goods produced in
the Netherlands were also weak in 2002 and remained at roughly the level
of 2001. Dutch businesses are losing market share due to their worsening
competitive position. Labour costs in the Netherlands have been rising
faster than in the rest of Europe for some years now, and the effects of
this were reinforced by the depreciation of the dollar in 2002, which also
hurt Dutch producers in relation to competitors outside the euro area.
Almost two-thirds of Dutch exports go to the country’s five main trading
partners: Germany, Belgium, the United Kingdom, France and the United
States. Hardest hit were exports to Germany, which fell by seven percent.
Germany is the Netherlands’ major trading partner with a share of 25
percent.
Inflation
Inflation was high again in 2002 at 3.5 percent. Prices are rising
quickly for consumers, who were confronted with above-average price rises
for food, non-alcoholic beverages and tobacco, but also for flowers and
plants, tickets to events and attractions, newspapers and magazines and in
bars, restaurants and cafes. On the other hand, a number of fixed
expenses, such as rents and gas and electricity charges, rose by less than
the average rate of inflation.
Although inflation in 2002 was much lower than in 2001 (when it was 5.1
percent), the Dutch consumer perceived things very differently and felt
that prices had in fact risen far faster than in 2001. This could be
connected with the fact that everyday shopping was again far more
expensive, but the introduction of the euro may also have been a major
factor in the consumer’s perception of the higher cost of living.
Purchasing power
After rising sharply in 2001, purchasing power declined slightly in
2002. Although the rise in gross incomes generally exceeded inflation the
effect was negated by the higher costs of health insurance and pension
contributions. In addition, some Dutch households lost their entitlement
to extra rent subsidies when the supplements were abolished.
Wage rises
The escalation in wages also slowed for the first time in years in
2002. Wages of workers in the private sector covered by collective
agreements rose by 3.7% compared with 4.5% in 2001. The lower inflation,
the rising unemployment and the negative growth of productivity last year
exerted downward pressure on wages. However, lower labour productivity
meant that real labour costs still rose by 1%.
Labor
The economic slowdown since 2001 left its mark on employment
figures in 2002. The number of jobs grew by just 78,000 in 2002, which was
significantly less than in previous years when the number of jobs
increased around 170,000 annually. The only substantial increase in job
numbers in 2002 occurred in health care and in the public sector. In other
sectors the expansion of employment stagnated; in some cases employment
even contracted. The slower economic growth also meant there were fewer
vacancies and more people out of work in 2002. Unemployment rose by 50,000
to a total of 300,000, representing 4.1 percent of the working population.
The tightness in the labour market eased in 2002.
Finances
Share prices fell for the third year in a row on the Amsterdam
stock exchange. Last year was in fact the worst year for investors in
Dutch stocks since World War II. Excluding dividend payments, share prices
slipped on average by 34.7%. Investors suffered total losses of 190
billion euros in 2002. Taken together with the average fall in prices of
2.1% and 19.2% in 2000 and 2001, shares have lost around half of their
value in the last three years. That represents a loss of more than 350
billion euros in the value of stocks listed on the Amsterdam bourse since
September 2000.
Sentiment on the bond market was by contrast upbeat in 2002. The total
yield, consisting of movements in interest and price, was 6.3 percent in
the first ten months of the year. In the long term, however, the overall
return on shares is higher than on bonds. Measured from the second half of
the 1980s the total return on shares listed on the Amsterdam stock
exchange averaged 12.0 percent compared with 7.3 percent for bonds.
In the second half of the 1990s the pension funds in the Netherlands
secured substantial gains on shares. The investment returns were so high
that they were able to keep contributions low. In some cases they even
suspended the payment of contributions or refunded earlier ones. In the
meantime, however, the collapse of share prices has seriously weakened the
financial strength of the Dutch pension funds and pension contributions
and payments are consequently under pressure. In the middle of 2002 the
invested assets of the pension funds amounted to 434 billion euros, which
is 20 billion euros less than a year earlier. Pension funds have invested
almost half of their assets in shares (in 1990 this figure was just 13
percent). Although the pension funds bought additional shares worth 26
billion euros in the period July 2001- June 2002 the value of their equity
portfolio fell by 22 billion euros in the same period. With the steep
decline in share prices in the third quarter of 2002, these losses have
escalated further.
Budget deficit
With the economy grinding to a halt, the modest budget surplus in
2001 turned into a deficit of 0.8% of gross domestic product in 2002. The
principal reason was that tax revenues were lower than projected. In
addition, lower than expected consumption meant that VAT revenues were 600
million euros less than forecast. The property transfer tax and
environmental taxes each also raised 100 million euros less than the
government had expected. These setbacks were partially offset by a
windfall of 200 million euros in social insurance contributions.
The total expenditure by the government remained within the limits set out
in the Budget. Although spending on health care was 400 million euros
higher than the prescribed limit, expenditure on some items remained below
the permitted ceiling. A prime example is social insurance, as the number
of people receiving unemployment and disablement benefits was lower than
forecast.
Sources: Statistics Netherlands, Netherlands
Bureau for Economic Policy Analysis, Ministry of Finance, NFTA |
Designed by Mehr Argham Rayaneh
