Dutch economy update: ASML expands while business climate pessimism and bankruptcies increase

Co-author: Willem Vincent, Global Trainee

Earlier this year, Dutch semiconductor manufacturer ASML – the third-largest company in Europe by market capitalization – expressed concerns about a deteriorating business climate in the Netherlands and considered expansion elsewhere. Last month, however, a declaration of intent for expansion was signed between ASML and the municipality of Eindhoven. The agreement outlines plans to construct new facilities and offices on an area equivalent to 143 soccer fields in the city’s vicinity. The project is scheduled to begin in 2027 and is expected to create 20,000, mostly high-productivity positions, effectively doubling the company’s current workforce in the Netherlands.

The decision followed the Dutch government's announcement last month of a EUR 2.5bn investment in enhancing infrastructure, education, and housing in the Brainport Eindhoven region. This initiative helped alleviate some of ASML's apprehensions following the increasingly critical political stance toward immigration. ASML’s new CEO, Christophe Fouquet (who assumed his role April 25), will, however, have to navigate politics beyond the Netherlands. The company finds itself at the forefront of a US and China microchips-driven geopolitical clash, which has already led to US-imposed export restrictions on its most sophisticated chip-making machinery to China.

ASML’s shift in intentions does not mean all is good again regarding the Dutch business climate. According to the Ipsos I&O business survey conducted in March, over half of entrepreneurs feel that the Dutch business climate has deteriorated over the past five years. Additionally, one in ten is contemplating a (partial) relocation from the Netherlands. More than 60% of the respondents feel that the government is not sufficiently safeguarding entrepreneurs' interests. Regulatory measures are frequently cited as their principal obstacle. These sentiments echo the concerns of the Dutch industry and employers' federation VNO-NCW, which highlighted the unexpected declaration of a higher national carbon price in the Dutch cabinet’s spring financial statement as indicative of the unpredictable regulatory landscape that industries must navigate. Furthermore, strict nitrogen measures and an overcrowded electricity grid often result in the rejection of expansion permits.

Given these factors, it's not surprising that the investment outlook in March was less optimistic compared to the same period last year. According to Statistics Netherlands' most recent survey, business owners in the manufacturing sector were particularly pessimistic. Since financing difficulties are most often cited as barriers for investments, the mood may shift positively when interest rates ease. Other indicators are a bit more positive: the Purchasing Managers’ Index is slowly crawling up again, driven by increased expected production in April compared to March.

According to Statistics Netherlands, in Q1 2024, bankruptcies surged to the highest level since Q2 2020. The total number of bankruptcies, including sole proprietorships and adjusted for court session days, reached 1,038. This increase marks the fourth consecutive quarter of rising bankruptcies, nearly tripling compared to the historical low in Q3 2021.

Despite the current uptick, bankruptcies remain 16% below the long-term average of 1,239 bankruptcies per year (see figure 3). This discrepancy becomes even more pronounced considering that the number of companies in the Netherlands has more than doubled since 2007 (Statistics Netherlands). Thus, the number of bankruptcies is still relatively low. The largest increases in bankruptcies compared to Q1 2023 were observed in specialized business services and the construction industry, where the number of bankruptcies rose by 96% and 68%, respectively.

Bankruptcies are predominantly influenced by macroeconomic variables, including interest rates, inflation, and GDP growth. Changes in these indicators typically manifest in the bankruptcy statistics with a lag of approximately 12 to 18 months. Given that interest rates have escalated since 2H 2023 and GDP growth was negative for three of the four quarters in 2023, it is reasonable to anticipate that bankruptcy filings will continue to rise through the end of 2024.