Dutch economic growth will pick up in coming years, inflation to stay higher than EU

Economic growth in the Netherlands will pick up in the coming years growing 0.9 percent this year and 1.5 percent each in 2025 and 2026, despite an increasing threat from geopolitical uncertainty. Inflation will remain at around 3 percent, higher than in the rest of the eurozone, De Nederlandsche Bank (DNB) reported in its autumn forecast.

The growth is mainly driven by household consumption and government spending, but the DNB also expects world trade to pick up and exports to contribute more to economic growth.

“However, the recovery in [export] growth is threatened by geopolitical uncertainty. As a trading country, the Netherlands remains sensitive to developments abroad, such as in the Middle East and the Russian war in Ukraine,” the DNB said. There is also a growing threat of a trade war with Donald Trump soon taking office again in the United States.

Trump has promised significant import tariff hikes, and the DNB urged the EU not to retaliate with similar increases. “We have calculated that a trade war could seriously affect economic growth in the Netherlands.” If there is a trade war, the growth of the Dutch economy will fall sharply in 2025 and especially in 2026. “In that year, only 0.4% of the estimated growth of 1.5% will remain.”

But most of the Dutch economic growth comes from domestic demand, the DNB said. Higher household income increased citizens' spending, especially in the second half of this year. “Because wage growth is higher than inflation, the real disposable income of households will increase by 4.5 percent this year.” Government spending also contributes significantly to growth.

Inflation in the Netherlands will remain higher than in the eurozone at around 3 percent in the coming years, the DNB said. The difference is mainly due to domestic factors: the excess demand in the economy, the high wage growth, and the impact of inflation on regulated prices such as rents, the central bank said.

“The European Central Bank aims for inflation of 2%. The economy thrives on that. Inflation of 3% is not a problem for the time being, but this level should not become entrenched in the expectations of people and companies. Because then 3% will become the new normal, and that will cost us purchasing power and undermine our competitive position,” said Olaf Sleijpen of the DNB.

Because the eurozone’s inflation is around 2 percent, the ECB is already lowering interest rates. So the Netherlands can’t count on ECB monetary policy to keep its inflation under control. “Trade unions, employers, and the government must work together to prevent 3% inflation from becoming structural,” Sleijpen said.