Dutch economy grows despite government collapse and global trade war

On June 3, the far-right Party for Freedom (PVV) pulled out of the Dutch coalition, marking the end of the Schoof I cabinet and potentially paving the way for new elections. The short-term economic impact of the cabinet’s collapse – this year and next – is expected to be limited. The current government will likely finalize the 2026 budget in a caretaker capacity, but significant new policy initiatives are unlikely.

In the longer term, however, the consequences could be more significant. The Netherlands faces major challenges in areas such as climate, the energy transition, infrastructure, healthcare, nitrogen emissions, the business climate, defense (due to the new NATO standard), and the housing market. The creation of the necessary policies for these issues will now be further delayed. This has several important consequences. First, it increases policy uncertainty, making businesses and consumers hesitant to commit to long-term investments and spending. Second, the lack of reforms will put additional pressure on long-term economic growth. Third, the delay will lead to higher future costs in the future, straining public finances over time.

Furthermore, the US government's erratic trade policy will continue to dominate global economic developments in 2025. As a small, open economy, the Netherlands is particularly vulnerable to abrupt changes in the global trade landscape. Therefore, this economic quarterly report devotes considerable attention to the trade war, the possible scenarios that may unfold, and their impact on various sectors of the Dutch economy.

Before diving deeper into this topic, we first take a brief look at the economic figures from Q1 2025 and outline our general expectations for the Dutch economy in 2025 and 2026.

Looking back: A weak first quarter

The Dutch economy grew by 0.1% in Q1 2025 compared to Q4 2024. A key reason for this modest growth was a 5.1% QOQ contraction in business investments. Investments in company vehicles dropped sharply in Q1 due to the abolition of the private vehicle and motorcycle (BPM) tax exemption for vans running on diesel, petrol, or gas – just as we predicted in our previous economic quarterly report.

An unexpected development was the 0.2% contraction in private consumption. Although wages rose faster than inflation, households spent less in Q1 than in the previous quarter. The change in car tax rules likely contributed to this development here as well, although concerns about the economic outlook – sparked by the announcement of new US trade policies – may also have prompted Dutch households to adopt a more cautious spending behavior.

The external picture was also unfavorable. Dutch exports fell by 0.8% QOQ in Q1 2025. One contributing factor was that countries worldwide were already facing higher US import tariffs of 25% on steel, aluminum, cars, and car parts in Q1. At the same time, US companies accelerated imports of raw materials and semi-finished goods to frontload shipments and avoid potentially higher future import tariffs. However, the Dutch economy saw little benefit from this, as the US remains a relatively minor export market for the Netherlands – a pattern that holds true for the entire euro area (see figure 1).

Looking ahead: Steady growth in the remaining quarters of 2025, followed by a slowdown in 2026

In a previous study, we outlined several scenarios for the development of the global trade war. At this point, we consider it most likely that we will ultimately end up in scenario 2 (implementation of the Liberation Day plans). Against this backdrop, we expect the Dutch economy to grow by 1.5% in 2025, followed by 1% growth in 2026 (see table 1). Later in this quarterly report, we delve deeper into the developments and outlook surrounding the trade war.

Given the significant uncertainty caused by the trade war, a growth rate of 1.5% is still relatively high. However, it is important to note that 0.9 percentage points of this growth stems from so-called positive carryover effects from 2024. This means that approximately 60% of the projected economic growth in 2025 is carried over from the previous year. Nevertheless, we still expect positive growth figures of between 0.3% and 0.4% QOQ in the coming quarters of 2025. It is only in 2026 that we expect a slight weakening of quarterly growth to an average of 0.2% QOQ, mainly due to a cooling global economy, caused by the trade war and the significant uncertainty it brings.

Erratic US trade policy

The US government, under President Trump, has had a significant impact on global economic developments during the first months of its new term. A full timeline of all trade war developments is included in the appendix. The most disruptive event was the announcement of sweeping US import tariffs on April 2 (Liberation Day), which sent shockwaves through financial markets (see figure 2a) and set the stage for an escalating trade confrontation with China. Within a matter of days, the two countries engaged in a series of retaliatory tariff hikes. By April 9, the US import tariff on Chinese goods had reached 145%, while China imposed a 125% tariff on imports of American products.

There was considerable relief after Donald Trump suspended a significant part of the Liberation Day tariffs for 90 days on April 9, and subsequently, on May 12, reached an agreement with China to temporarily reduce bilateral tariffs on both sides for the same period. In addition, the UK reached a trade agreement with the US – a signal that there is indeed room for cooperation with the US government.

At the same time, Trump recently threatened to impose 50% tariffs on goods from the EU as of July 9, due to frustration with the slow progress of negotiations with Brussels. It is unclear whether this should be seen purely as a negotiation tactic to secure a better deal with the EU, or whether the president will stand firm, potentially escalating the transatlantic trade conflict. Furthermore, Trump announced that, as of June 4, he will further increase import duties on steel and aluminum from 25% to 50%.

Impact on the real economy

After the Chinese-American tariffs were reduced for 90 days on May 12 – down to 10% in China and 30% in the US – orders have likely picked up again. However, the logistics of maritime transport are not that flexible. There are only a few hundred of the largest container ships operating worldwide, and the schedules are tightly organized so that each ship is in the right place at the right time. Because some vessels did not set sail during the period of elevated tariffs, they are now likely in the wrong locations to meet the sudden surge in transport demand. Port capacity is also limited, which can lead to longer waiting times at ports and increased costs for businesses. During the onset of the Covid-19 pandemic in March 2020, demand for maritime transport temporarily collapsed, but returned to pre-pandemic levels within three months. Nevertheless, the effects of the disruptions were felt much longer. For example, in 2021, shipping prices reached record highs – four to seven times the rates seen before the pandemic began (see figure 4).

In addition to a major disruption of international transport chains, we also expect that the uncertainty surrounding the course of the trade war will negatively impact companies' investment decisions (more on this later). Also, the universal US tariff of 10% on all imported goods, along with the sector specific tariffs of 25% on steel, aluminum, cars, and car parts, will have repercussions on global trade. However, it will take some time for these effects to become visible in the hard economic data.

Escalation risk remains particularly high

Looking ahead, policy uncertainty and the risks of escalation in the trade war remain particularly high (see figure 2b). The recently announced 50% US import tariff on goods from the EU once again underscores that Trump does not shy away from escalation when dissatisfied with the pace of negotiations. Moreover, it remains unclear what will happen when the current 90-day grace period expires in early July.

Given the uncertainty, we have conducted a scenario analysis outlining several potential escalation stages in the trade war in (see figure 5). Although we are currently still in scenario 1, we consider scenario 2 a more realistic outcome of the negotiations between the EU and the US. At the same time, we cannot rule out scenario 4 as a risk scenario.

If the negotiations between the EU and the US were to break down, and Trump were to actually implement the Liberation Day tariffs or the 50% tariffs he has threatened, the EU would likely respond with countermeasures to signal its rejection of unilateral protectionist policies. Such countermeasures could in turn provoke a reaction from the US, increasing the risk of further escalation. The EU has also indicated that it will retaliate with its own import tariffs if the US government raises the steel and aluminum tariffs to 50%.

Economic effects in the event of further escalation

If the EU and the US fail to reach an agreement in the negotiations, resulting in a transatlantic escalation scenario, this will have significant repercussions for the Dutch economy.

[1] In scenario 4 , we assume US import tariffs of 40% on goods from the EU, supplemented by specific 25% tariffs on steel, aluminum, cars, and car parts. Exemptions for certain goods (such as medicines) have also been taken into account.

For specific sectors, the impact could be even greater. When we take a closer look at Dutch export goods that are vulnerable to higher US import tariffs, a specific type of steel tops the list. This is used in packaging materials, storage of chemicals, in electric vehicles, construction, electronics, and electrical applications (see table 2). More than half of this steel is shipped to the US. In general, starting June 4, the increase in US import duties from 25% to 50% will directly impact Dutch companies in the steel industry.

Furthermore, the US market is important for Dutch exports of aircraft parts – a pattern that also holds true for exports of aircraft parts from the entire eurozone. In addition, the Netherlands exports a significant amount of beer to the US: 30% of all Dutch beer exports go to the US. Finally, high-tech machinery (such as data processing machines, lithography machines, X-ray equipment) and machine parts are important Dutch export goods for the US market.

Dutch companies – and their suppliers – that are heavily dependent on exports to the US could face difficulties if US demand drops due to high import duties. However, it is important to note that this demand will not necessarily decline drastically in all cases. If American producers or consumers cannot find a good alternative to these Dutch products, the impact will be limited. In addition, companies will try to sell products that they cannot sell in the US market elsewhere.

Dealmaking or ideological battle?

Since taking office as president, a clear cyclical pattern has emerged in the way Donald Trump conducts the trade war. He uses harsh rhetoric and announces sweeping protectionist measures as a negotiation tactic, but partly reverses them as soon as economic or political pressure mounts. Based on this, it can be concluded that the far-reaching escalation scenarios, as shown in figure 5, may never materialize.

Nevertheless, we consider it premature to claim that Trump's tariff zigzag is solely aimed at closing (weak) deals. First, there is still considerable uncertainty about the exact details of the agreements the US has reached with both the UK and China. It is likely that the US will again demand firm agreements, for example, to reduce the trade deficit with China – similar to the Phase One trade deal from Trump's first term. Although attention to that deal quickly faded due to the Covid-19 pandemic, it soon became evident that China had not (fully) honored the agreements. Trump did not have the opportunity to impose sanctions due to the end of his term in office, but now, with more time, he may choose to act.

Second, while Donald Trump may be seen as a shrewd businessman focused on making deals, we should not forget that he has surrounded himself with several ideological hardliners, such as Peter Navarro (in Dutch) and Stephen Miran. These advisors are outspoken advocates of protectionist policies, aimed at correcting structural imbalances in the global economic system. Our scenario analysis shows that the trend toward an improved equilibrium of the global trade balance mainly occurs in the more severe escalation scenarios of the trade war. Our Global Strategist Michael Every also expects that upcoming trade decisions will be shaped more by mercantilist considerations[2] than by the principles of free trade. All of this suggests that Trump's protectionist course is far from over.

[2] Mercantilism is an economic theory that argues that state power and national wealth can be increased by pursuing trade surpluses. It also views trade as a zero-sum game: What one party gains, the other loses.

The significant uncertainty surrounding the trade war may have played a role in the slight contraction of private consumption in Q1 2025. In April and May, consumer confidence reached its lowest level in more than eighteen months (see figure 7a). This decline started in November of last year, probably not coincidentally the same month Donald Trump was elected president of the US. The recent de-escalation in the trade war may help restore confidence, as was also reflected in the stock markets.

Looking ahead, we expect Dutch consumers to spend more in the near future. Dutch households are currently benefiting from collective labor agreement wages that are rising faster than consumer prices (see figure 7b), resulting in a modest increase in purchasing power in 2025 (+0.3%) and a more substantial effect in 2026 (+0.9%). The significant increase in purchasing power in 2024 also continues to support Dutch consumers. According to Statistics Netherlands (in Dutch), net savings, the part of disposable income that is not spent on consumption of goods and services, rose by 19% (adjusted for inflation), and the household savings rate rose from 14.5% to 16.3%. This offers room for continued (large) consumer spending in the coming period. We expect private consumption to eventually increase by 1.5% in 2025 compared to 2024.

In 2026, we anticipate even slightly higher growth in private consumption of 1.7%. New measures from the Spring Memorandum will lead to a slight improvement in the projected purchasing power, although it remains uncertain whether all plans will be implemented now that the Dutch cabinet has fallen. Compared to 2025, the government's contribution to purchasing power remains negative, but it is less negative than under the previous plans in the Budget Memorandum. As a result, we have slightly raised our consumption forecast for 2026.

We have already assumed that the social housing rent freeze plan will not go ahead. Now that housing corporations have filed a lawsuit and there is significant opposition in the Dutch House of Representatives), it is highly unlikely that a caretaker cabinet will proceed with the plans. As a result, inflation will be higher and purchasing power will decline. For more information, see our latest inflation monitor (in Dutch).

As expected, Q1 saw a significant contraction in business investments (5.1%) due to the abolition of the BPM tax exemption for vans running on diesel, petrol, or gas. As a result, many planned investments in the vehicle fleet were brought forward to 2024.

In addition, Trump’s trade war has thrown many companies in a state of economic uncertainty. The collapse of the cabinet has added fuel to the already growing uncertainty. Uncertainty complicates investment decisions. Where should businesses focus their investments? Is there still a case for expansion if import tariffs are dampening foreign demand? Investment costs may also rise, for example, if the price of machines from outside the EU increases due to import tariffs. The weaker economic outlook as a result of the trade war is therefore also affecting the investment climate. This is also reflected in producer confidence, which in May reached its lowest level in over a year (see figure 8). Many producers report that inventories are too large and order books too small, which may indicate lagging demand. Nevertheless, a larger proportion of surveyed producers expect their production to increase over the next three months, although this proportion has been declining in recent months compared to those expecting lower production.

Due to the escalation of the global trade war at the beginning of this quarter, we have revised our forecasts for business investment downward compared to our previous economic quarterly report. For 2025, we expect a contraction of 1.6%, despite falling interest rates. For 2026, we anticipate that private investment will grow by only a modest 1.3%.

Housing investment on the rise, but government plans create uncertainty

Investments in new housing construction and renovation of existing properties rose sharply in Q1 2025, by 3.4%. We expect this growth to continue in the coming quarters, driven by a robust pipeline of construction projects and the high number of home sales. Partly due to statistical carryover from last year, the growth figure for 2025 is expected to reach as much as 7.0%.

Looking further ahead, however, we are less optimistic. Now that the Schoof I cabinet has collapsed, the development of new housing market policy will be put on hold. Moreover, the previous cabinet already created a lot of uncertainty around the social housing rent freeze and potential revisions to the Affordable Rent Act. That uncertainty will only increase as long as it remains unclear how a potential new government will approach these topics, thereby putting a brake on investments.

We expect government consumption and investment to make a significant positive contribution to economic growth in the coming years. Both the Schoof I and Rutte IV cabinets introduced ambitious plans for areas such as climate, infrastructure, and defense, without offsetting these with similar cutbacks in other areas. In addition, healthcare costs continue to rise, driven in part by an aging of the population. Economic growth would have been even higher if the government had managed to implement all of its planned investments. However, this is hindered by labor and equipment shortages, long delivery times, and other restrictions (such as nitrogen regulations). This so-called underspending is expected to increase further this year and next.

We are already factoring in further increases in defense investments. President Trump 's tougher NATO spending demands – he wants member states to spend 3.5% of their GDP on defense, plus an additional 1.5% on investments in infrastructure from that indirectly benefit defense – are expected to push the Netherlands to ramp up its defense spending. Additionally, in scenarios marked by escalating tensions between Europe and the US , we anticipate the EU to increase its defense expenditures, as Europe may no longer be able to fully rely on US protection. This results in projected growth in government consumption of 2.1% in 2025 and 1.3% in 2026, and a growth in public investment of as much as 4.2% and 6.3%, respectively.