Dutch central bank cuts growth forecast to 0.8% amid global trade disruption

The Dutch economy is set to grow more slowly than previously anticipated, with De Nederlandsche Bank (DNB) lowering its forecast from 1.2 percent to 0.8 percent. The central bank cites disrupted global trade linked to the Iran conflict as a key factor. Inflation is also picking up pace due to rising oil prices. Even so, DNB notes that the economic fallout for the Netherlands remains milder than during the 2022 energy crisis.

Back then, the Dutch economy shrank as a result of Russia’s invasion of Ukraine and the suspension of Russian gas supplies. This triggered a sharp inflation surge, which peaked at 10 percent in 2022. For this year, DNB now projects inflation to rise by 2.7 percent, a significantly lower level, though still 0.3 percentage points above the December forecast.

Inflation is considerably lower than in 2022 because the Netherlands relies much less on oil than on gas, while oil prices have risen since the Iran conflict. As a result, Dutch inflation is also somewhat below the level seen in other European countries with greater exposure to oil markets. DNB expects inflation to ease further next year to 2.3 percent, helped in part by lower electricity prices.

The Netherlands’ reliance on oil and gas has decreased noticeably since 2022, as both households and businesses adapted their consumption patterns after the sharp price increases. Electricity has now become a larger factor in inflation. With electricity prices falling, the country is already seeing some benefits from the ongoing energy transition.

Bas ter Weel, DNB’s director of monetary affairs, therefore advises continuing on this path. “The results underline that vulnerability to disrupted supply chains and dependence on fossil fuels must be reduced. We already said this after Russia’s invasion of Ukraine, and that message still stands. It remains a vulnerability of the Dutch economy. Targeted policy in this area is not only economically sensible, but also feasible.”

Ter Weel does not agree with the assessment that the impact of the Iran war on the Dutch economy is actually limited. “Inflation was expected to fall, but it is now rising. So in that sense, we are seeing an effect of about 0.4 percentage points from this conflict. Economic growth is also clearly slowing by 0.4 percentage points. And that is a third of the total growth we expected. So I would not call that insignificant.”