Strong productivity growth, the expansion of ASML and the technology boom have helped drive the Netherlands’ economic performance. Economists warn, however, that some of the gains may be temporary and that a lack of long-term investment threatens future growth.
The Dutch economy is growing faster than many economists expected, despite high inflation, rising energy costs, geopolitical uncertainty and persistent constraints on construction and infrastructure. Growth reached 0.6 per cent in the latest quarter, following an upwardly revised 0.7 per cent in the previous three months, taking annual growth to 2.1 per cent — the strongest pace since 2022.
The Netherlands has recorded economic growth of around 11.5 per cent since 2020, making it the second-fastest-growing economy among the eurozone’s 10 largest, behind Spain. Germany, traditionally a key driver of the Dutch economy, has barely expanded over the same period.
The unexpected performance has prompted questions among economists about what is driving the expansion and whether it can be sustained.
According to an analysis by Dutch newspaper de Volkskrant, three factors help explain the growth: rising labour productivity, the strength of the technology sector, particularly ASML, and increased government spending.
Productivity gains offer a boost
Higher labour productivity has become increasingly important for the Netherlands, where an ageing population and limited growth in the workforce mean that future economic expansion will depend more heavily on producing greater value with fewer working hours.
After years of almost stagnant productivity between 2015 and 2024, output per working hour has risen by nearly 5 per cent in just over two years.
However, Rabobank economist Hugo Erken cautions that some of the increase may reflect changes in employment patterns rather than lasting efficiency gains. Tighter rules on self-employment and the withdrawal of tax advantages have encouraged more people to move into salaried jobs.
Because self-employed workers officially report more annual working hours than employees, this shift can raise measured productivity per hour even when the amount of work actually performed has not changed significantly.
Employees have also been working fewer hours without necessarily taking on fewer responsibilities, potentially improving efficiency in the short term. Erken argues, however, that this process cannot continue indefinitely.
ASML and the AI boom drive growth
A more substantial source of growth is the Dutch technology sector, centred on chipmaking equipment manufacturer ASML in Veldhoven.
The machinery sector expanded by 43 per cent last year, according to Statistics Netherlands. ASML alone accounts for approximately 1.6 per cent of Dutch gross domestic product, rising to 2.2 per cent when its suppliers and related businesses are included, according to ING estimates.
ING calculates that the region around Veldhoven contributes around 0.3 percentage points to expected national economic growth of 1.8 per cent.
ING economist Bert Colijn says ASML and its surrounding industrial cluster have become increasingly important to the economy. Their contribution has risen significantly over the past decade, allowing the Netherlands to benefit from the global technology boom despite broader concerns about Europe’s competitiveness against the United States and China.
The concentration of growth in a single major company also creates risks. Erken points to Denmark’s Novo Nordisk and Finland’s Nokia as examples of how dependence on a dominant business can leave an economy vulnerable when that company or its industry encounters difficulties.
Artificial intelligence is also likely to be supporting growth in information technology and business services, although economists say further research is needed to establish its full impact.
Companies are selling more AI applications, while businesses in consultancy, law and accountancy are using the technology to complete tasks more quickly. Erken cites an example of a software company that reduced the time needed to develop a new application from several months to just two weeks by using AI.
However, productivity improvements could eventually put downward pressure on prices as customers demand lower fees from companies able to deliver services more efficiently.
The technology boom also masks difficulties elsewhere in Dutch industry. Energy-intensive sectors, including chemicals, metals and construction materials, continue to face significant pressure.
Government spending supports expansion
Increased public spending has provided another boost to economic activity. Pandemic support programmes, assistance during the energy crisis and higher defence expenditure have all supported short-term growth.
Rising public-sector employment and healthcare spending are also contributing more than 0.3 percentage points to economic growth, according to Rabobank estimates. But this comes alongside increasing government debt and future interest costs, which the bank expects to reach €30 billion annually by 2035.
Economists warn that strong current growth should not obscure the Netherlands’ structural investment problems. Grid congestion, nitrogen-related restrictions on construction, infrastructure bottlenecks and weaknesses in education could undermine the country’s long-term competitiveness.
Colijn argues that sustained growth will require investment in knowledge, innovation, education and infrastructure. He points to Germany as a warning, saying years of insufficient investment have contributed to the deterioration of its infrastructure and economic performance.
Rabobank economists expect Dutch growth to slow to around 1 per cent over the medium to long term without additional investment. The bank has previously estimated that raising long-term growth to 1.5 per cent would require additional annual investment of up to €19 billion.
Inflation threatens household spending power
The outlook is also clouded by the economic consequences of the war involving Iran and rising energy prices. Erken warns that some businesses, particularly in the food industry, have yet to pass higher costs on to consumers because prices for the coming year are still being negotiated.
He expects price increases to take effect from January, putting further pressure on households.
Rabobank forecasts that economic growth could slow to 1.3 per cent, while inflation could rise above 4 per cent. Purchasing power is expected to fall by more than 1 per cent next year.
Erken says the outlook ahead is less favourable than the recent economic figures suggest, warning that some of the economic pain has yet to be felt.
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