Regulator warns of financial market instability despite strong economic outlook
Despite a positive economic forecast, the Netherlands’ Authority for the Financial Markets (AFM) has cautioned that stability in financial markets could quickly shift, with vulnerable populations at increased risk in times of economic uncertainty. In its annual Trend Insight report, the AFM highlights the need for caution given global economic fragility and potential new shocks.
The AFM noted that Dutch households have displayed resilience in response to rising inflation and interest rates, a trend supported by government aid during the COVID-19 pandemic and recent energy crises, along with steady wage growth, a tight labor market, and a preference for long-term fixed mortgage rates. However, the AFM urges sustained attention to financially fragile households who may face significant impacts from rising living costs and debt service burdens.
Certain household groups remain especially vulnerable, including those engaged in high-risk investments or holding large personal loans. The aging population and migration trends are shifting dynamics among financially vulnerable groups. Those with a migrant background, for example, may face heightened risks of financial exclusion, underinsurance, or fraud in cross-border transactions with unregulated entities. The AFM points to older adults on limited pensions, reliant on state benefits, and lacking homeownership as another particularly at-risk group.
Younger generations, too, face financial vulnerabilities, increasingly normalizing debt through services like pay-as-you-go financing and engaging in high-risk investments, including cryptocurrencies. The AFM notes that young people’s familiarity with debt and risky financial practices requires close monitoring, given their potential exposure to volatility.
While inflation has moderated somewhat, AFM’s forecast indicates that economic growth will remain slow, pointing to a broader cooling last year due to high food and energy costs. Though a severe recession was avoided, the AFM warns that stability could be short-lived. Persistent inflation above the European Central Bank’s target may delay rate cuts, while geopolitical developments could also unsettle financial markets.
