Despite Positive Signs, Dutch Growth Faces Hurdles

As any football fan knows, little delights the Dutch more than beating the Germans. So, as the country prepares for an election on March 15, it should be cheering an economy that, after lagging behind Germany’s for years, is at last outpacing it.

GDP grew by 2.1% last year, which was the fastest rate since 2007 and a stronger performance than its neighbors, including Germany. Unemployment has fallen to 5.3% and more people are in work than before the crisis in 2007-08, The Economist reported.

After years of belt-tightening, households are spending again, thanks to a strong housing-market recovery and rising wages. Government finances are sound. This year the budget may be in balance—perhaps even in surplus—and public debt may drop below 60% of GDP. Yet this sunny outlook has not brightened the mood of a tetchy election campaign.

That is not so surprising. Marieke Blom, the chief economist at ING, a bank, attributes the positive forecast mostly to tough government reforms over the past few years—particularly raising the retirement age to 67 (from 2021) and reforming the financing of the health-care system. Years of reform, austerity and recession have taken their toll. Pollsters predict strong votes for protest parties such as the Socialists and the PVV of Geert Wilders, an anti-immigration populist.

Jeroen Dijsselbloem, the finance minister, acknowledges that, despite positive forecasts, “many of our voters have really had some harsh times.”

Around 80% of the flowers and 70% of the plants that Britain imports come from the Netherlands. Growers could be particularly hard hit if Brexit led to new trade barriers. At a parliamentary hearing last month, representatives of other Dutch industries voiced similar concerns. The fishing lobby emphasized how much it needs access to British waters: 60% of the Netherlands’ fish, including 90% of its beloved herring, are caught there.

Agricultural and food exports to Britain were worth €8.9 billion ($9.8 billion) last year. The farming lobby says it is already suffering from sterling’s weakness, which makes its products 20% dearer, and worries that the EU’s farming policy will become more subsidy-driven when Britain no longer has a seat at the table.

The country’s economic-policy bureau, the CPB, estimates that a “hard” Brexit, in which British trade is governed just by WTO rules, could cost the Dutch economy 1.2-2% of GDP by 2030. And Britain is not the only headache. Exports to America—and hence the threat of American tariffs—also matter disproportionately to the Dutch: 3.4% of GDP (compared with 2.6% on average for the EU) and 300,000 jobs depend on them.