Private consumption rose by 0.5% in 2004, after falling by 0.9% in 2003, but remained sluggish, partly because of a persistently high unemployment rate of 6.4%. Private consumption is forecasted to pick up slightly in 2005-06. Government consumption increased by only 0.2% in 2004, well below increases in previous years. Although private and government consumption remained weak, investment staged a modest recovery with fixed capital formation 1.6% higher in 2004 than in 2003, a positive trend following drops of 3.6 and 3.1% in 2002 and 2003, respectively.

Many firms in the Netherlands cite a loss of competitiveness as a major impediment to growth. Increases in unit labor costs in recent years have outpaced those of their major competitors, including within the euro area. However, low wage rises in 2004 enabled firms to regain some lost ground, and further gains are expected following the recent agreement to restrain wage growth in 2005. Inflation dropped to 2.2% in 2003 and fell further to 1.4% in 2004, despite higher oil prices. Inflation is expected to stabilize at 1.5% in 2005 but could rise again slightly in 2006 as stronger domestic demand begins to put upward pressure on prices.

The Netherlands was one of the first EU member states to qualify for the Economic and Monetary Union (EMU). Its fiscal policy has sought to strike a balance between further reductions in public spending and lower taxes and social security contributions. However, an unexpected sharp economic downturn tipped the fiscal balance and pushed the nominal deficit from 1.6% of GDP in 2002 to 3.3% in 2003, breaching the 3% GDP limit set by the EMU's Growth and Stability Pact. In April 2004, the center-right coalition government agreed to a package of spending cuts, largely to health services, which helped to lower the budget deficit to 2.9% of GDP, just within the 3% limit. The government's 2005 budget, announced in September 2004, includes additional austerity measures and suggests that the deficit will decline further to 2.6% of GDP. However, concessions made to unions on unemployment benefits in order to reach agreement on measures to discourage early retirement and to keep wage rises down could widen the deficit unless the government introduces further cuts in 2006.

Although Dutch crude oil production is small, the Netherlands ranks among the largest producers and distributors of natural gas. The Slochteren gasfields in Groningen Province in the north are among the world's largest-producing natural gas fields. Total proven reserves of natural gas situated on the mainland currently amount to about 2 trillion cubic meters. Roughly 80% is accounted for by reserves on the mainland, the remaining 20% accounted for by relatively small deposits on the North Sea continental shelf. Current gas production is running at an annual average of close to 80 billion cubic meters, roughly half of which is exported to EU member countries.

The National Environmental Policy Plan (NMP) sets out Dutch environmental policy. The first version was published in 1989, followed by second and third versions in 1993 and 1998, respectively. NMP-4, laying out government environmental policy over the next few years, was published in 2001. Under the NMP, the government seeks to cut back on all forms of pollution by 80%-90% within one generation, meaning that by 2010, the present generation should be able to pass on a clean environment to the next one.

Although the environmental quality in the Netherlands has improved significantly, some important targets, particularly with respect to nitrogen oxide and ammonia emissions, climate change, and noise reduction, will not be realized within the timeframe set in the NMPs. The main reasons for this are increasing mobility, energy use, and intensive agriculture. The NMP-4, therefore, proposes drastic measures in order to be able to meet the targets.

The Dutch Government works closely with industry and nongovernmental organizations on implementation of environmental policy. To be able to reach environmental targets, the government has signed agreements with the private sector and other relevant organizations. In order to meet the Kyoto target of reducing greenhouse gas emissions by 6% in the 2008-2012 period from 1990 levels, the government reached an agreement with industry and the energy sector on emission rights trading. The sectors have been allocated 112 million tons of CO2 for the 2005-2007 period. The European emissions trading system is to start operating in 2005.