Economic update the Netherlands: Slower growth ahead amid geopolitical tensions

World trade and tariffs have taken center stage since US President Donald Trump took office earlier this year. Focusing on the Netherlands, the most impactful American import tariff package – the reciprocal tariffs announced on Liberation Day – has largely been postponed. To address the erratic trade policy of the US, we developed various scenarios and calculated their economic impact. These scenarios range from a negotiation phase, in which only the 10% universal tariffs and certain product-specific tariffs (such as those on cars and steel) are applied, to a full escalation of the trade war. As the severity of the scenarios increases, so does their corresponding economic impact.

In our new baseline scenario, we assume that the tariffs announced on Liberation Day will take effect after their 90-day postponement. We expect the EU to respond mildly to avoid escalation and the imposition of even higher US tariffs, but we also expect the trade war between the US and China to escalate. Consequently, Dutch GDP growth is projected (in Dutch) to decline this year, and more significantly next year. This is primarily due to lower exports and a decrease in business investments.

Impact of tariffs on business sectors

We have not yet fully assessed the impact of the different scenarios on the business sectors of the Netherlands, but we have analyzed the dependency of Dutch business sectors (in Dutch) on US final demand. Of the Dutch sectors, the manufacturing industry is most dependent on the US, particularly pharmaceutical and machinery manufacturers. This is not surprising, as 60% of total Dutch manufacturing production is produced to be exported (see figure 1).

Besides the manufacturing sector’s dependence on US demand, American tariffs on steel and aluminium (25%), and cars and car parts (25%) have already gone into effect. These tariffs have a direct impact on Dutch manufacturing.

The Netherlands is home to some major steel producers – Tata Steel, for example – and the tariffs on steel and aluminium (in Dutch) will hurt Dutch businesses directly. However, the impact of the tariffs aimed at the car industry (in Dutch) is less straightforward. Since BMW ceased its Dutch production in 2023, there has been no significant car industry in the Netherlands, as illustrated by the substantial decline in production since then (see figure 2). But Dutch businesses do deliver inputs to German car manufacturers, and these indirect relations mean the Netherlands is not immune for American car tariffs. Second order effects, such as a weakening German economy induced by these car tariffs, can also hurt the Dutch economy in a broader sense.

Besides the significant shrinking of the car industry, we also observe that the Dutch chemical sector has not recovered from its dip following the 2022 peak in energy prices (see figure 2). Recently the manufacturing sector as a whole saw its production increase, with 1.2% MOM in February.

We have not fully incorporated the new baseline scenario into our sector forecast. In March, we forecast value added of the manufacturing sector to increase by 2% this year, and 0.7% next year. We expect that, particularly in 2026, these growth figures will be adjusted downward.

Low GDP growth in Q1 2025

Earlier this week, Statistics Netherlands released its estimates for GDP and its components for the first quarter of 2025. The Dutch economy grew by a modest 0.1% QOQ, following stronger growth figures in the last three quarters of 2024 (1.0%, 0.8%, and 0.3% respectively). This low growth rate broadly aligned with our expectation (0.2%), as investments and trade were anticipated to weaken. Investments declined notably due to fiscal changes affecting business motor vehicles, with a surge in these investments in Q4 2024 attributed to frontloading.

Household consumption was unexpectedly weak, driven by reduced spending on food and motor vehicles. On the other hand, government consumption contributed positively, supported by increased healthcare expenditures and a rise in the number of civil servants. Additionally, Statistics Netherlands revised the growth figures for Q4 2024 downward. Factoring in these changes on top of the impact of US import tariffs, the GDP growth forecast for 2025 has been lowered from 1.7% to 1.1%, and from 1.2% to 0.6% for 2026.

Spring budget and private consumption

Amid these geopolitical developments, the Dutch government presented the financial adjustments they plan to make in the Spring Budget. The focus is on stability and safety, ensuring the continuity of support for Ukraine, and higher defence spending. According to the Netherlands Bureau for Economic Policy Analysis (CPB), the plans will only slightly increase the government’s deficit to 2.8% in 2026. This means the overall macroeconomic impact of the budgetary adjustments will be very limited.

Some of the announced measures will also directly impact consumer spending. Lower taxes on energy, increased housing allowances and minimum wages, and no VAT increases on culture, sports, and media will have a positive impact. On the other hand, previously announced income tax cuts have been reduced, and a shorter unemployment benefit term negatively affects households' disposable income and private consumption. These developments have not yet been incorporated into our new baseline scenario, but we expect private consumption to remain one of the key drivers of Dutch economic growth.

Although household consumption declined in Q1 2025, we still expect it to increase in the remainder of this year. Real wage growth and the low unemployment rate are supporting consumer spending. Although unemployment did rise to 3.9% in March, it continues to be historically low. The persistently tight labor market is a contributing factor, and we do not expect this to change in the near future.

In our updated baseline scenario, we expect inflation to rise to 3.8% this year and 3.0% next year. Consumer prices, another important contributor to household consumption, are therefore only slightly higher than previously forecast. European countermeasures against US tariffs and general global supply chain disruptions continue to elevate consumer prices in the Netherlands. However, we expect Chinese goods to be partially redirected to Europe. Even with potential EU "anti-dumping" measures, this will reduce the inflationary impact.