IMF lowers Dutch economic growth forecast as Iran war drags on

The International Monetary Fund (IMF) has lowered its growth forecasts for the Dutch economy due to the war in the Middle East. If the conflict continues for a long time, growth this year could even fall to just half a percent, IMF experts said on Wednesday when presenting the findings of a fact-finding mission to the Netherlands.

The IMF said the Dutch economy was performing relatively well earlier this year, but the Iran conflict and the blockade of the Strait of Hormuz have driven up energy and fuel costs. This is increasing inflation, expected to reach around 2.9 percent this year, while weakening consumer and business confidence is holding back spending and investment.

In its baseline scenario, where the conflict is assumed to be short-lived, the IMF expects Dutch economic growth to ease to 1 percent this year and recover to 1.3 percent next year. Earlier projections had still pointed to growth of 1.2 percent in 2025 and 1.4 percent in 2026.

Economists say there is still major uncertainty about the duration and impact of the war. In a worst-case scenario, where oil and gas prices rise on average by 40 percent and 100 percent over 2026 and 2027, Dutch economic growth could be about half of what is expected in the baseline outlook for both years. Inflation would also likely come in considerably higher under those conditions.

IMF experts have praised the Dutch government’s current approach. They say the planned energy support appropriately targets vulnerable households, energy-intensive small and medium-sized businesses, and energy-saving investments in housing. According to the IMF, wider, untargeted measures like price caps or fuel tax cuts would be expensive and could also discourage energy-saving behaviour.

The IMF also stresses that the Dutch government should not lose focus on major issues such as electricity grid congestion and the nitrogen crisis. These problems, it says, are also holding back economic growth. The fund is therefore urging the cabinet to accelerate planned reforms from the coalition agreement to address these structural bottlenecks.