NBCC were pleased to introduce to you our partner, Barbara Baarsma, Chief Economist at PwC and Professor of Economics at the University of Amsterdam.

Industry-Specific Insights (Netherlands)

1. Which Dutch industries (e.g., finance, tech, agriculture, logistics) are showing the most resilience or growth?

Over the last three decades, the Dutch economy has fared reasonably well compared to other OECD countries, increasing living standards by around 50%. However, recently it has become apparent that the old economic model that worked previously might not anymore be fit for the future. As companies are feeling the need to reinvent their business models amidst rising pressures, the Dutch economy needs to structurally change to deliver on the societal ambitions of the Netherlands.

The Dutch economy faces several bottlenecks that limit economic growth. Several of them are global in nature. Think of population ageing, climate change, technological disruption and recent geopolitical trends. However, many challenges are also specific to the Netherlands, such as decreasing available physical space, acidification (damage caused by excess nitrogen) and water quality challenges. Because the Netherlands is a small country in terms of surface area (ranked the 131st country measured by area), ), while having the 17th largest economy globally, the economy is reaching its limits and is at risk of getting stranded in an inefficient distribution of scarcity.

To maintain high levels of prosperity and well-being and fulfill our ambitions in, for instance, housing, defense, healthcare and climate change, the Dutch economy will have to change. The Dutch government needs to make choices that help reallocate the scarcity of production resources to create more growth space for highly productive activities with a limited spatial and environmental footprint.

With the right government steering, companies will grow their sustainable research and development (R&D) and innovation efforts, boosting their own productivity growth and, at the same time contributing to the growth of the entire economy. In a recently published report, we illuminate the direction of where to start the steering by the government and what considerations companies should take to increase the Dutch growth potential. Based on their economic activities, some industries are better equipped for modern transformations than others. Which industries are best positioned for future growth potential of the Dutch economy?

We looked through three lenses to determine which sectors are future proof and which sectors will have to reinvent themselves or, if that proves impossible, scale down activities. Those lenses are: position in the economy (centrality), economic contribution (including labour productivity growth and private R& D) and utilisation of scarce productive resources (including labour, water, nitrogen and land).

The analysis considers 15 commercial sectors over the period 1995-2023. The most centrally located sectors, which make a large contribution to the economy and also have limited use of scarce productive resources, are those with the most potential for sustainable growth. In 2023, high/medium-high-tech manufacturing scores highest, followed by specialised business services. Sectors that need to reinvent themselves include medium-low tech manufacturing, transportation and storage and agriculture.

Although the analysis was carried out at the level of sectors, restructuring of the economy takes place at the level of individual companies. Indeed, the difference in labour productivity is greater within sectors than between sectors. And even when it comes to the level of pollution, innovation or space use, you cannot lump all companies in a sector together. Policy should therefore focus on scaling down laggards within sectors to create growth space for frontrunners.

Future Outlook & Recommendations

2. How should Dutch businesses prepare for potential economic volatility or political changes?

In a world where, partly due to tariff wars, geopolitical tensions are running high, it is important to deepen the single market. Instead of opting for retaliation and protectionism, it is better to improve the single market in line with the advice of Enrico Letta and Mario Draghi. The single market is bigger than the US market. With 450 million inhabitants, the EU is larger than the US's 340 million.

Essential is the dismantling of trade barriers between member states. These are currently still considerable. The IMF calculated that those barriers expressed in import tariffs amount to a tariff of 45% for goods and as much as 110% for services. Lowering them simulates mutual trade and creates prosperity. 10% lower trade barriers could eventually lead to 7% more economic output for the EU, the IMF calculated.

Moreover, the EU would be wise to conclude more trade agreements with non-EU countries. It is good news that the European Union and four Mercosur countries - Argentina, Brazil, Paraguay and Uruguay - reached a political agreement on 6 December 2024. Swift ratification is now important, and then negotiations with countries that have signalled their interest in a stronger trade relationship. Think Australia, India and other countries in Southeast Asia.

The Netherlands is economically dependent on the export and import of goods and protectionism is a major risk. The economic facts and principles about free trade are not subject to political fashion. David Ricardo described the theory of comparative advantage as early as 1817. Countries benefit from specialisation. If one country specialises in producing cars and another in producing food and the countries trade these products among themselves, they are both better off than if they made cars and food themselves. Free trade agreements lead to lower prices and more choice for consumers.

Free trade is not a “zero sum game”. The gain of one is not the loss of the other. Both buyer and seller benefit from trade. An imported Belgian or German beer makes both thirsty Dutch customers and foreign brewers happier. Free trade creates more prosperity for everyone. Rational arguments and economic facts now matter less politically, but that does not make them any less true.

Current Affairs – Political Developments

3. What are your hopes following the fall of the current cabinet in the Netherlands?

I hope that the fall of this cabinet paves the way for consistent, long-term policymaking and concrete action, as that is what the Netherlands needs to create room for sustainable growth.

Prof. Dr. Barbara Baarsma
Chief Economist at PwC
Professor of Economics at the University of Amsterdam

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