With many changes in 2024, uncertainty has taken over predictions for 2025 regarding many topics, but especially the economy. Today’s article focuses on economic forecast for The Netherlands.

The Dutch economy is poised for a modest rebound following a period of stagnation in 2023 and 2024. Projections indicate that real GDP growth will rise to 1.6% in 2025 and 1.5% in 2026. A combination of easing inflation and robust wage growth is expected to bolster private consumption, while investments are set to recover gradually. However, fiscal challenges and geopolitical uncertainties present potential risks. Business investment, which faced a downturn in 2023 and 2024 due to tighter financial conditions and labour shortages, is expected to pick up modestly. Public investment will also contribute positively to the growth trajectory.

In 2025 and 2026, private consumption is anticipated to strengthen further as wage growth, falling inflation, and tax reductions enhance household disposable incomes. Meanwhile, business investment and trade are expected to benefit from an improved external environment and easing financial conditions. Real GDP growth is forecast at 1.6% in 2025 and 1.5% in 2026.

Labour Market Resilience

The Dutch labour market remains robust, with unemployment rates at a low 3.6%. However, employment growth has slowed, and unemployment is projected to rise slightly to 3.8% in 2025, and 3.9% in 2026. Wage growth, driven by a tight labour market and the need to catch up with past inflation, is expected to gradually ease to 4.7% in 2025 and 3.6% in 2026.

Inflation Trends

Inflation in the Netherlands has been on a downward trajectory, with HICP inflation averaging 3% in the first half of 2024, down from 4.2% in 2023. However, high services and processed food inflation pushed the headline rate to 3.4% in the third quarter of 2024. Inflation is expected to moderate further, with annual HICP rates projected at 2.4% in 2025, and 1.9% in 2026.

Fiscal Challenges and Public Debt

The government budget deficit for 2024 was lower than initially forecast, standing at 0.2% of GDP. This improvement is attributed to higher-than-expected tax revenues and lower-than-planned expenditures in defence, infrastructure, and climate initiatives.

However, the deficit is forecast to increase to 1.9% in 2025 due to tax cuts and a court ruling requiring the repayment of unduly collected taxes. In 2026, a reform of the military pension system will result in a one-time expenditure equivalent to 0.7% of GDP, pushing the deficit to 2.4%. Public debt is projected to rise from 43.3% of GDP in 2024 to 44.3% in 2025 and 45.6% in 2026, remaining below the eurozone average.

Trade and Geopolitical Risks

The outlook for Dutch exports is mixed. While growth is expected to remain subdued in the near term, the easing of financial conditions and a stronger eurozone recovery in 2025 could provide a boost. However, global uncertainties, including a slowing U.S. economy and China’s real estate challenges, present risks. Geopolitical tensions, such as potential U.S. import tariffs, could also significantly impact Dutch trade, given the country’s integration into global value chains.

Conclusion

The Dutch economy is on a path to gradual recovery, supported by strong wage growth, improving financial conditions, and resilient private consumption. However, fiscal pressures and external risks, including geopolitical uncertainties, remain key challenges. Policymakers will need to navigate these complexities to sustain growth and maintain fiscal stability in the coming years.

References

ABN-AMRO Group Economics . (2024, September 12). Dutch economy in focus – One swallow does not make a summer. Retrieved from ABN-AMRO Group Economics : https://www.abnamro.com/research/en/our-research/dutch-economy-in-focus-one-swallow-does-not-make-a-summer

European Commission. (2024, November 15). Economic forecast for Netherlands. Retrieved from European Commission: https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/netherlands/economic-forecast-netherlands_en

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