Dutch economy growing and people have more spending power, but deficit worsening

The Dutch economy will grow in the coming year, purchasing power will improve, and fewer people will live in poverty, the Bureau for Economic Policy Analysis (CPB) reported in its draft Macro Economic Outlook for 2025. However, the government deficit will worsen and quickly approach the EU standard.

The government uses this CPB forecast to determine its budget for next year. The CPB included plans from the new government’s coalition agreement that were developed enough in its calculations. The Schoof I Cabinet will present its first national budget on Budget Day next month.

According to the CPB, the Dutch economy will grow by 0.6 percent this year and 1.6 percent next year. Higher wages, tax breaks, and stronger world trade will boost economic growth.

Households in the Netherlands will see their purchasing power increase by an average of 2.5 percent in 2024 and 1.1 percent in 2025. By next year, the average household’s purchasing power will be above the 2021 level, before Russia invaded Ukraine and triggered massive inflation.

According to the CPB, purchasing power will improve as a result of tax relief measures in the coalition agreement. Higher wages also play a role, though they are still catching up to inflation. The CPB expects inflation, based on the European harmonized method, to amount to 3.5 percent this year and 2.8 percent next year.

The proportion of Netherlands residents living in poverty will drop from 4.6 percent in 2023 to 4.5 percent in 2024 and 4.1 percent in 2025. Childhood poverty will also decrease, from 5.8 percent in 2023 to 4.6 percent in 2025. In the years after, it will likely increase slightly, the CPB expects.

The higher purchasing power and lower poverty levels are offset by a rising budget deficit. Government expenditure is rising faster than income and will bring the deficit close to the European Union's maximum of 3 percent of the gross domestic product (GDP). “This means that there is a chance that in the event of future setbacks, sudden cutbacks will be necessary,” the CPB said.

The rising deficit also means that government debt is increasing. “Government debt is at a low level but is on a rising path that will be adjusted at some point,” the CPB said. If no measures are taken against this, the government debt will cross the EU standard of 60 percent of GDP in 2034.