Dutch industry is growing significantly. However, the increasing shortage of chips, printed circuit boards and other electronic components is increasingly hampering further growth. Furthermore, sharply rising investment in AI data centres and current geopolitical tensions are driving up the prices of materials and raw materials. As a result, the growth rate of Dutch industry could slow from mid-2027 onwards, warns ABN AMRO.
The bank bases its assessment on the Nevi Purchasing Managers’ Index (PMI) for the Dutch manufacturing sector, which stood at 55.0 in October. This represents a fall from 55.6 in September. A score above 50 indicates an improvement in business conditions. Although the index has fallen slightly, industrial growth remains robust, according to ABN AMRO. Production volumes, for example, are showing one of the largest increases in more than four and a half years. The number of new orders has also risen, although the increase is less pronounced than in the previous month.
Conditions are deteriorating
At the same time, the index points to deteriorating conditions within supply chains. For example, delivery times in October were longer for the seventeenth month running. As a result, manufacturers are increasingly facing longer lead times, higher procurement costs and uncertainty regarding the availability of spare parts. Companies are anticipating potential shortages by building up stocks. This is putting further pressure on an already tight market, reports ABN AMRO.
According to ABN AMRO, one of the main causes of the deteriorating conditions is the sharp rise in investment in data centres focused on artificial intelligence (AI). These investments are driving demand for both advanced chips and chip-manufacturing equipment. The Netherlands is, however, benefiting from this thanks to the presence of chip-making equipment manufacturers, such as ASML. The Netherlands also has a specialised and extensive supply chain.
This growth is also reflected in production figures. Statistics Netherlands (CBS) reports that Dutch industrial production in August was 12 per cent higher than in the same month a year earlier. Mechanical engineering was a key driver of this growth, with production up by 45 per cent. Strong growth is also evident internationally in countries with a significant semiconductor sector, such as Taiwan and South Korea.
Shortages are spilling over into other sectors
Strong demand for chips and electronic components is leading to increasing competition for available production capacity. Manufacturers of chips and printed circuit boards are increasingly focusing on the AI market, where margins are higher. This makes it more difficult for companies in other sectors to obtain the components they need
ABN AMRO compares the current situation with the shortages that arose during the COVID-19 pandemic. At that time, a significant proportion of production capacity was reserved for consumer electronics, meaning that car manufacturers, amongst others, did not have enough chips available. According to the bank, there is a risk that shortages amongst industrial customers could lead to problems now as well. Figures from Statistics Netherlands (CBS) show that the electrical engineering industry, in particular, is already facing problems due to a shortage of components.
The Dutch manufacturing sector is, incidentally, working to increase its production capacity. However, it remains to be seen whether supply can keep pace with demand. ASML has also already indicated that production in 2027 and 2028 will not be sufficient to meet all demand. ABN AMRO: “After three weak years, however, market conditions have changed dramatically this year. Overcapacity is currently disappearing like snow in the sun due to the overwhelming growth in investment in data centres for AI applications. Nevertheless, the current pace of growth is unlikely to be sustainable, even though industrial companies are trying to increase their production capacity.”
Rising raw material prices and geopolitical risks
Incidentally, the growing demand for electronic components is not the only cause of the increasing cost pressures. Geopolitical developments are also playing a role. For instance, the conflict with Iran and the tensions surrounding the Strait of Hormuz are affecting the availability and prices of raw materials and energy. Attacks on oil tankers, oil terminals and refineries are driving up prices for oil and gas, as well as sulphuric acid and epoxy resin, amongst other things. These materials are crucial for the production of chips and printed circuit boards.
Energy-intensive industrial companies, in particular, are being severely affected by rising energy prices. At the same time, businesses are grappling with rising interest rates, which are leading to higher financing costs. This is particularly true of the manufacturing sector, where investment in machinery, production facilities and production capacity is costly.
ABN AMRO expects the current growth rate of Dutch industry to slow by mid-2027 because the global industry cannot scale up quickly enough. In some sectors, there is a risk of an acute shortage of chips and electronic components. According to ABN AMRO, this makes the growth of the sector as a whole even more dependent on AI.
