Uncertainty and trade tensions weigh on economic growth

Alternative scenarios: risk of growth slowdown

DNB also prepared two alternative scenarios in addition to the baseline scenario. In the mild scenario – with lower tariffs and less uncertainty – GDP growth is slightly higher (1.2% in 2025, 1.1% in 2026 and 1.3% 2027). In the severe scenario – where countries impose higher and reciprocal tariffs – Dutch economic growth slows sharply and comes to a virtual standstill in 2026. These scenarios highlight the sensitivity of the open Dutch economy to international trade tensions and the associated uncertainty.

Inflation falls

Inflation in the Netherlands is expected to fall below 3% in 2025 due to the global economic slowdown, lower energy prices and the appreciation of the euro, which makes imports cheaper. Domestic factors such as the cooling economy and slowing wage growth also contribute to lower inflation. Earlier increases in indirect taxes are no longer reflected in the inflation rate, which is beneficial for price developments.

The projections still assume a freeze on rents in the social housing sector. Now that this legislative proposal has been withdrawn, inflation is expected to be slightly higher in 2025 and 2026. Core inflation (excluding energy and food) shows the underlying trend: it is expected to fall from 3% this year to 2% in 2027. However, Dutch inflation is projected to remain higher than in the rest of the euro area.

Real income growth, consumption and government spending support growth

Private consumption remains a key growth driver, supported by a continued rise in real disposable income. Against the backdrop of decreased consumer confidence, households save on average 5% of their income, partly as a buffer for financial setbacks and partly for mortgage loan repayments or to purchase a home. Government spending is another contributor to economic growth.

House prices are expected to rise by over 7% in 2025, mainly due to mainly due to the increase in borrowing capacity resulting from higher wages, with persistent tightness in the housing market also playing a role.

Labour market cools, wage growth levels off

Unemployment is projected to increase to 4.4% in 2027. The labour market is set to remain tight, though there are signs of easing. As a result, wage growth is expected to level off gradually, while remaining higher than inflation over the projection horizon. This implies a continued rise in real wages.

Real wage loss largely recovered

The real wage loss caused by high inflation in recent  years is expected to be largely recovered over the projection horizon, thanks to high negotiated wage rises, wage drift (e.g. bonuses), and higher employer contributions to social insurance. However, there are substantial differences between sectors and individual households.

Budget deficit to grow

Lower economic growth will cause tax revenues to fall, while spending on social security and healthcare is set to rise, resulting in a deterioration of public finances. In 2025, the deficit is expected to come close to the European limit of 3% of GDP, exceeding this limit in 2026. This leaves the government with little fiscal space, making the budget vulnerable to unexpected setbacks.

Policy recommendations: resilience and potential growth

To make the Dutch economy more resilient to shocks and to safeguard future potential growth, DNB makes a number of policy recommendations. 

First of all, it is essential to uphold and support multilateral, rules-based cooperation. Trade barriers only damage our economy and imperil our prosperity.

Second, a robust European single market is imperative to support our economic resilience, reducing dependence on other global regions. In addition, it is important to promote the diversification of trade relations by cooperating with other trading partners outside the EU, especially now.

It is also vital to boost the economy's long-term potential growth. This requires more efficient use of scarce production factors, such as labour, through technological innovation, as well as the resolution of barriers to investment, such as grid congestion and nitrogen issues.

Finally, it is essential to maintain healthy public finances. Structural fiscal buffers are needed to absorb future economic shocks, taking into account rising costs due to the ageing population, higher interest expenditures and the need for investments that enhance productivity and potential growth.