Uncertain times call for a strong Netherlands and a strong Europe

Shoulder to the wheel

“In a world that is rapidly changing, we cannot continue as before. We need to put our shoulder to the wheel, in the Netherlands and in Europe. This realisation is becoming increasingly widespread in all areas of society. Above all, it means becoming more resilient – and in some cases less dependent on the outside world – and increasing the growth capacity of our economy,” says the DNB Executive Board in its outlook.

Higher inflation and slower growth due to war in Middle East

With the war in the Middle East, the importance of a strong, resilient and more autonomous Europe has become clearer and more urgent than ever in recent weeks. Scenarios prepared by DNB show that, assuming policies remain unchanged, the sharp climb in gas and oil prices could cause inflation in the Netherlands to rise significantly, though not as sharply as during the 2022 energy crisis. In a severe scenario, economic growth could slow down considerably.

Higher energy prices also have a negative impact on disposable incomes, but this impact is also less pronounced than in 2022. Just as before, those on lower incomes will be hit hardest.

The calculations show that the economic impact on the Netherlands depends heavily on the duration of the war and on the damage to production infrastructure in the Middle East and oil and gas exports from the region. Persistently elevated energy prices are passed on in the prices of other goods and in wages. Such second-round effects increase the risk of more persistent high inflation.

The scenarios published by DNB today are not projections. They do not take account of a potential monetary policy response, for instance. Should second-round effects arise that put pressure on the ECB’s target – 2% inflation in the medium term – the ECB will do its part to prevent this by raising its policy interest rates.

Further deepening of EU single market

The best defence against these shocks is to strengthen the resilience and growth potential of the Dutch economy. This requires a strong European economy. In a world of growing economic uncertainty, the single market of the European Union is our engine and airbag in one: an efficient single market with fewer obstacles boosts economic growth and is a buffer against external shocks. The EU has officially had a single market for 33 years, but it is still far from complete, and this is holding back economic growth in Europe.

Make better use of Europe’s strengths

EU Member States would benefit greatly if they removed unnecessary regulatory and administrative burdens, as well as trade barriers. With a population of 450 million, the EU is the world’s largest trading bloc and second largest economy. However, much of our potential remains untapped due to differences in national regulations. Think of different national requirements for supermarket labels, evaluating credentials or public procurement.

In addition to the single market for goods and services, a larger market for venture capital is also needed. These and other financial markets remain fragmented, which means that promising young companies all too often leave the Netherlands or the European Union, even though there is €10 trillion parked in household savings accounts across Europe.

Labour productivity growth in the Netherlands must more than double

There is therefore still much to be gained in Europe through more and smarter cooperation, but it is also important to boost the growth potential of the Dutch economy. If we wish to maintain our current level of prosperity in the long term, labour productivity must grow by more than 1% per year on average, whereas growth is currently stuck at 0.5%.

Address bottlenecks

The government can take action to tackle well-known obstacles to growth: nitrogen pollution, the overloaded energy grid, the stagnant housing market, a lack of investment in education and research, and the outdated tax and benefits system. The government’s ambitions to address these bottlenecks deserve support.

Building on a stable foundation

Building a stronger European economy – and, by extension, our own future prosperity – is only possible on a stable foundation. That means inflation of around 2%, sound public finances and predictable government policies.

The European Central Bank (ECB) has succeeded in bringing inflation, which had risen sharply four years ago, back down to the 2% target. It did so without causing undue damage to the economy, partly thanks to the central bank’s independent position. The ECB remains committed to its 2% inflation target in the medium term.

Inflation in the Netherlands remains slightly higher than the euro area average, partly due to the tight labour market and other bottlenecks in the Dutch economy. Addressing these bottlenecks will help to bring Dutch inflation down even more.

Keep the budget deficit below the 3% limit

Fiscal policy has also fuelled inflation in recent years. It is important to aim for a budget deficit of less than 3% of gross domestic product (GDP), the European deficit limit. Previously, the Working Group on Fiscal Space recommended aiming for a deficit of 2% of GDP. The room left under the 3% deficit limit should therefore not be seen as spare change that the new government can allocate as it sees fit.

If cutbacks prove unfeasible or impractical, or are not implemented for political reasons, alternative funding must be found, for example by re-evaluating certain tax schemes that have been the subject of criticism. Indeed, Dutch public finances must also be resilient. This will ensure space below the European deficit limit of 3% to absorb shocks while also promoting political calm.

The Netherlands needs Europe, and Europe needs the Netherlands.

The Executive Board of De Nederlandsche Bank believes that the Netherlands can contribute significantly to a strong European Union by ensuring that our own economy is future-proof and resilient.

“We in the Netherlands should embrace more of what Europe stands for. Traditionally, we have tended to view European integration primarily as a revenue model. However, in these new times, we can no longer afford to take such a narrow view of Europe. Because in a world where the international rule of law is being upended and replaced by the law of the jungle, it is only as a united Europe that we can preserve our sovereignty. The Netherlands needs Europe, and Europe needs the Netherlands,” said the DNB Executive Board on Tuesday.

Media representatives can contact Bouke Bergsma by email at bouke.bergsma@dnb.nl  or by telephone at +31 653 258 400.

More information

• Outlook (Dutch only) [link]
• War in the Middle East: the impact on the Dutch economy [link]
• DNB Annual Report 2025 (Dutch only) [Link]