Moderate growth expected in the Dutch economy despite geopolitical unrest

The Dutch economy will likely experience moderate growth in the coming years despite the geopolitical insecurity in the world. The main reason for the growth is the households and government, who are expected to increase their expenditure. This prediction was made by the Netherlands Bureau for Economic Policy Analysis (CPB).

Gross domestic product (GDP) is expected to grow by 1.9 percent this year and by 1.5 percent in 2026. Households will also save more money because the salaries have increased significantly. The purchasing power grew by 2.9 percent last year. This number will also likely grow by 0.6 percent this year and 1.1 percent next year.

The CPB expects inflation to be reduced, although it is set to stay at above 2 percent for the coming years. This is not only due to salary increases but also the effects of the policies like VAT increases. Poverty is also lower, partly due to tax relief and the increase in the child-related budget and housing benefit.

The economy will also grow more strongly in the medium term than previously estimated, according to the CPB. Because more young people and elderly people at pension age are working, the labor opportunities are more significant. Unemployment will also remain lower. However, the CPB is expecting productivity growth to remain low during this time.

But insecurity is expected in the world. The CPB said that the predictability of political decisions has decreased the election of United States President Donald Trump. This could lead to a huge change in the situation regarding trade and international cooperation. In the new estimate, the CPB stated that it has already taken limited account of the increased uncertainty.

In addition, the CPB also calculated that the government's deficit is rising slower than expected. This likely means that the Cabinet has more space for financial manuevring in the coming time. The number of working people is higher than expected, which leads to a higher income from taxes.

The current forecast for this year shows a deficit equal to 1.8 percent of the total size of the Dutch economy. A deficit of 2.5 percent was still predicted for 2025 in September, meaning that this is a difference amounting to billions of euros.

Next year, the deficit is expected to increase to 2.4 percent. This high figure is a one-off because of the defense pensions. In 2026, these pensions will be transferred to the ABP, and the government must pay an additional 8.5 billion euros. The deficit should decrease again in 2027.