The Dutch Economy and the Brexit

Short Introduction
In 2015, the Netherlands had a GDP of $832.6 billion with a real growth rate of 1.9% (CIA, 2016). Services, agriculture and industry represent respectively 79.6%, 1.6% and 18.8% of the 2015 GDP (CIA, 2106). The country had a labour force of 2015 was of 7.884 million with an unemployment rate of 6.9%. The mains export partners of the Netherlands are Germany 24.5%, Belgium 11.1% and the UK 9.3% and the main imports partners are: Germany 14.7%, China 14.5% and Belgium 8.2% (CIA, 2016). To continue with, he country’s financial sector is dominated by four major banks which own 90% of the banking assets. Not only the Netherlands is one of the largest economy in Europe, it also has a relatively stable GDP growth rate throughout the past twenty years. (Trading Economics, 2016).

As member state of the European Union, the country benefits from no import restrictions as well as no tariffs for trade between member states. Nevertheless, the UK, one of the main business partner of the Netherlands, is now out of the EU. Will this decision impact the Netherlands’s economy? If yes will this have positive or negative consequences? These questions will be briefly discussed in this paper.

A potential disaster
To start with, Reuters points out that the Brexit would reduce the Dutch economy by 1.2% by 2030.

According to the CPB Netherlands Bureau for Economic Policy Analysis, “the Dutch economy is more connected to the economy of the United Kingdom (UK) via trade than to that of the European Union (EU) as a whole”. With the UK leaving, the Netherlands will therefore be exposed to a considerable trade gap. The size of the effect being uncertain, we can however confidently affirm that uncertainty will grow for the Dutch exporters. There is a risk of new tariffs being imposed when trading with the UK and also a risk of the UK creating import restrictions.  This should impact negatively the trade balance of the Netherlands and its real GDP growth rate for the years to come unless the UK manages the renegotiations of trade agreements with the EU with success. Moreover, the research points out that the sectors of ‘chemicals, plastics and rubber’, ‘electronic equipment’, ‘motor vehicles and parts’, ‘food processing industry’ and ‘metals and minerals’, which together form 12% of the Dutch GDP, could suffer from production losses of more or less 5%.

To continue with, the Netherlands will be the most negatively impacted country of the EU by the Brexit according to Global Counsel 2015 report.

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Furthermore, the Global Counsel mentions that “Dutch firms have direct investments worth €177 billion in the UK, earning over €9 billion in 2013, equivalent to almost 1.5% of Dutch GDP” (ONS, IMF WEO, GC calculations). Added to this, the Netherlands exported €7 billion in services as well as €42 billion in goods creating a surplus of €6.8 billion. (Global Counsel, 2015) (ONS Pink Book, 2014). It is also important to mention that some of the Netherlands largest companies are well established in the UK such as Unilever, Shell or Phillips. The Brexit may mean a delocalization of these headquarters to another country. Lastly, the report points out that the Netherlands has bank loans from Britain adding up to €236 billion in 2014 pointing out again the dependence of Dutch economy on the UK.

The loss of such an ally that the UK is/was will have dramatic consequences on the Dutch exports and its finance industry negatively impacting the Dutch growth. The question which needs to be raised now is: For how long will the Netherlands suffer from the Brexit?

It should also be mentioned that the Netherlands will be indirectly affected by the EU’s loss due to the growing tensions and uncertainty within the European Union itself. The exit of the UK opens the possibility for the more member state exits in the coming years (Reuters, 2016). To illustrate this, the anti EU right wing party of the Netherlands already talked about a “Nexit” referendum (Financial Times, 2016). This increased uncertainty could negatively affect foreign direct investment flows within the EU, affecting vicariously the Netherlands itself.
Damage Control:

Oneself could easily draw conclusion on the effect the Brexit has on the Dutch economy. However, there are a few important points to mention which jeopardize the negative impact of the Brexit.

To start with, the actual exit of the UK will not happen before the next two years (CPB Netherlands Bureau for Economic Policy Analysis, 2016). As a result of this, one could expect the member state of the EU, including to the Netherlands, to anticipate the withdrawal of the UK, partially reducing its negative impact on the economy.

To continue with, it is very likely that the UK will negotiate trade agreements with the EU. The UK will need to ensure the fact it has similar trade regulations with the rest of the member states from tariffs to importation restrictions. The more similar the regulations are, the lesser the impact on the economy of the UK and the member states.

Other assumptions found in the CPB Netherlands Bureau for Economic Policy Analysis are that, as the UK would be less interesting for investors, there would be a redistribution of investments within the EU, potentially benefitting the Netherlands. Lastly it should be mentioned that not all the Dutch industries will be directly affected by such an exit.
To conclude, the Netherlands will be negatively affected by the Brexit. To begin with, the country will face issues regarding its exportation, its financial services and its multinationals. Moreover, the Dutch economy may suffer from growing uncertainty regarding the European Union itself. However, it is important to point out that the actual withdrawal from the UK itself will only occur in two years. During these two years, the member states of the EU will have plenty of time to anticipate and adapt their strategy. Further, the UK will also have the opportunity to negotiate trading agreements with the EU, which will help to control the damages in the long run.

Bibliography:

Reuters . 2016. Effect of Brexit ‘relatively severe’ for Dutch economy – government forecaster. [ONLINE] Available at: http://uk.reuters.com/article/uk-britain-eu-dutch-idUKKCN0YV09W. [Accessed 17 July 2016].

Global Counsel . 2015. Brexit the impact on the UK and the EU. [ONLINE] Available at:https://www.global-counsel.co.uk/sites/default/files/special-reports/downloads/Global%20Counsel_Impact_of_Brexit.pdf. [Accessed 18 July 2016].

CPB Netherlands Bureau for Economic Policy Analysis . 2016. Brexit Affects the Netherlands more than many EU Countries . [ONLINE] Available at:http://www.cpb.nl/sites/default/files/omnidownload/CPB-Policy-Brief-2016-07-Brexit-costs-for-the-netherlands-arise-from-reduced-trade.pdf. [Accessed 18 July 2016].

CIA . 2016. The World Factbook . [ONLINE] Available at:https://www.cia.gov/library/publications/the-world-factbook/geos/nl.html. [Accessed 18 July 2016].

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