The Netherlands - Consumption to lead the charge

In 2024, the Dutch economy experienced robust growth, surpassing growth in neighbouring countries. After two strong quarters, the pace of growth moderated to 0.4% q/q in the fourth quarter, as confirmed by a second calculation released on March 26th. This brought annual growth in 2024 to 0.9%, marking a notable recovery following two years of stagnation. The main drivers of growth in 2024 were spending from both the government and households. Looking forward, we expect annual growth to reach 1.8% in 2025 and 1.0% in 2026, carried by the same domestic factors that held up growth in 2024, amid external uncertainty.

In recent quarters, rising real incomes have led to higher consumption. Government policy is supporting purchasing power, helping boost consumption despite weak household sentiment. Consumer confidence keeps declining, possibly due to (geo)political uncertainty, while the potential for significant policy changes may induce households to save more as a precaution. We anticipate that the savings rate will stabilize at a higher level than it was before the pandemic. This was also reflected in the figures published on March 26th, which showed that the savings rate rose further. This continues to put a lid on consumption growth. On the other hand, as inflation will gradually decline (though staying higher compared to the eurozone average) and wage growth continues to outpace inflation, consumers have more to spend. The CPB forecasts that purchasing power will rise by an average of 0.6% in 2025 and 1.1% in 2026. Additionally, the tight labour market contributes positively to consumption growth. Consumers do not foresee a sharp rise in the unemployment rate, which supports consumption: it provides security for workers and opportunities for entrants. Lastly, the positive outlook for house prices supports consumption. This occurs indirectly through the wealth effect, where homeowners feel wealthier due to the increase in the value of their assets, and directly through an increased number of (expected) transactions and new mortgage loans, which stimulate housing-related purchases.

Recently, international developments have been unfolding rapidly. The main source of uncertainty comes from the US, where President Trump is threatening with additional import tariffs on top of the ones that already have been implemented. Trump is expected to clarify his plans on April 2nd, after which we will revise our forecasts. Another important factor is Germany. The expected fiscal stimulus in Germany brightens its growth outlook, which will likely spill over to Dutch growth as well. Finally, as explained in this month’s Spotlight, we estimate that higher defence spending (towards 2.5% of GDP by end-2026) will likely boost growth in 2026 by 0.2pp, all else being equal.

Discussions on the Spring Memorandum have kicked off. The coalition faces existing challenges like reducing nitrogen emissions and expanding grid capacity, as well as new issues such as increasing defence spending. Despite the revised downward estimate of the budget deficit for 2025 and a favourable starting position for public finances, the necessary expenditures and desires seem to be greater than the structural budget allows for. Although the coalition has survived so far, the upcoming budget discussions present another test for a coalition plagued by internal disputes.