What if energy prices remain high for longer and uncertainty lingers?

In both scenarios, energy prices rise sharply. The energy market remains under strain for longer, and costs for firms and households rise. The surge in energy costs has a wider impact: transport becomes more expensive, as do food and other goods in shops. At the same time, uncertainty in the financial markets grows. Banks and investors become more cautious about financing new projects and charge higher interest rates when they do. This makes borrowing more expensive for firms and households, thereby further holding back economic growth.

The impact depends on the duration and severity of the shock

The two scenarios differ in terms of the intensity of the energy price shock and how long it lasts. Also, the degree of uncertainty associated with the shock varies. In the adverse scenario, energy prices rise, but fall comparatively rapidly after peaking in the third quarter of 2026. In the severe scenario, oil and gas prices rise even more sharply and remain high for much longer. In both scenarios, it is assumed that the government and central banks do not adjust their policies.

In the adverse scenario, inflation rises to 2.9% in 2027, and remains higher than projected in 2028 as well. Economic growth slows somewhat. This is mainly due to the uncertainty and the higher costs for households and firms. This puts pressure on purchasing power, and firms postpone investments such as buying new machinery or expanding their operations.

International trade also grows at a slower rate, which is bad news for the Netherlands, as many Dutch firms rely on exports. In short, the economy cools down, but it is not disrupted.

Severe scenario: a downturn in economic growth

The consequences are more dire in the severe scenario. The economy takes a heavy hit. Prices rise even further and, what is more, remain high for longer. There is also greater uncertainty in the financial markets.

Economic growth slows further, particularly in 2027. Domestic and foreign demand both fall. Households tighten their belts due to high prices and uncertainty. Firms see their turnover fall and postpone investments.

Rising costs and a bleak outlook put pressure on firms. This has an impact on the labour market: unemployment rises to over 5%.

Global trade also grows at a much slower rate. For an open economy like the Netherlands, this is particularly detrimental. Firms see their exports decline.

Inflation rises more sharply in the severe scenario

Prices rise faster than in our projections, particularly in 2027.

In the severe scenario, inflation peaks at 4.6% in 2027. Second-round effects may also occur as employees demand higher wages to offset rising prices. Firms pass on their higher labour costs in the prices they charge. This means inflation remains high for longer. In such a situation, it stands to reason that the ECB would intervene by raising interest rates.

In 2028, inflation eases somewhat as energy prices fall, but remains considerably higher than projected. This is because previous price rises still have an impact on the economy.

The scenarios illustrate how energy prices can have a major impact on the economy. If they rise sharply, it will affect virtually everyone: households, firms and the government.

In the adverse scenario the economy slows down slightly. The severe scenario suggests that an even sharper downturn is a possibility, with lower growth, higher unemployment and higher inflation.

In practice, policymakers will intervene if the situation deteriorates. For example, central banks can raise interest rates to curb inflation. Governments can take measures to support households in order to mitigate the loss of income.

Looking ahead pays off

Although the future is uncertain, these scenarios help us to be prepared for a prolonged war in the Middle East, as they illustrate the potential impact of persistently high energy prices.