Quarterly Economic Report: Uncertainty continues to weigh on outlook

The global economy continues to be weighed down by high uncertainty and protectionist policies. This also affects the Dutch economy.

The trade war with the US is increasingly starting to crystallize. In the new trade agreement between the US and the EU, a maximum American import tariff of 15% has been agreed on most goods, without European countermeasures. In addition, the EU has pledged to buy US goods – including defence equipment and energy – and has pledged to invest some USD 600bn in the US.

For exporting and importing companies, this provides some clarity, but enough uncertainty remains. The US and the EU will negotiate the further details of the agreement in the coming months. As a result, it is likely that companies will remain cautious with investments, as things can still change within the agreed frameworks.

In addition to the international uncertainties, some domestic developments are also causing uncertainty. The fall of the Schoof cabinet has increased uncertainty about future government policy. Even without that cabinet fall, however, there was already uncertainty about what the policy will look like in the future. The last cabinets have only been able to convert their desired plans for the business climate, the energy transition, the climate and the nitrogen problem into concrete legislation to a limited extent, and it is unclear what the next cabinet will do. This policy uncertainty can discourage businesses and consumers from making long-term decisions, resulting in lower economic activity, which is likely to affect investment and the production of durable goods.

An upside risk comes from the government. The proposed higher defence spending as a result of the increased NATO standard will stimulate economic growth in both the short and long term – depending on the quality of implementation. A relatively quick cabinet formation can also give an extra boost to growth.

All in all, the economic outlook is below average. As described below, the Dutch economy appears to be sufficiently resilient under the abovementioned developments for the time being. Looking ahead, we do not expect an economic downturn, but we do expect below-average growth. Bright spots for households are likely to remain low unemployment and expected steadily falling inflation.

Hardly any growth in second quarter

In the second quarter of this year, the Dutch economy grew slightly, by 0.1% compared to the previous quarter, according to Statistics Netherlands (CBS). In the first quarter, gross domestic product (GDP) growth was 0.3% (quarter-on-quarter; QOQ). In (geo)politically difficult times, the Dutch economy has managed to avoid contraction, but the growth of 0.4% in six months remains below potential.

In the second quarter, it was mainly government spending and business investment that made a positive contribution to growth (see figure 1). The latter showed some recovery after a weak first quarter, in which the purchase of company cars fell sharply due to tax changes that made the purchase more expensive. Stocks also grew substantially, but this is offset by a large amount of imports. Therefore, the impact on economic growth is limited.

Household consumption increased only slightly. The growth from the first quarter was almost completely offset in the second quarter. Households mainly spent less on accommodation and food services, recreation and clothing. This is not easy to explain. The weather in the spring was above average for hospitality and recreation. Since both of those categories fall under luxury consumption, it is important to keep an eye on whether this development will continue in the near future. It may be a first sign that consumers are really tightening their purse strings, partly due to increased global and national uncertainty, and that the economy is entering a lesser period.

On the production side, it is striking that a few small sectors showed the highest growth in the first half of the year (see figure 2); water and waste, and mineral extraction. However, taking into account the size of the sectors, it was non-commercial services that made the largest contribution to overall economic growth, followed by trade and ICT. Construction and agriculture were the only ones to make a negative contribution to the growth in the first half of the year.

Moderate growth expected in the coming quarters

The effects of global and national uncertainty will continue to affect the Dutch economy in the coming quarters. GDP is expected to grow by 1.5% this year and by 1.0% next year (see table 1).

Due to the increasing pressure on world trade, Dutch exports are struggling, and are therefore making a negative contribution to economic growth (see figure 3). Investments by businesses and investments in residential property will make a positive contribution to the expected growth.

However, it is expected that households and the government will mainly bear the economic growth in the coming period. With decent real wage growth and low unemployment, household incomes are developing positively. As mentioned earlier, the uncertainty about the economic future is a downside risk to this. Despite the fall of the cabinet, there are still plenty of plans in the national budget that will lead to extra spending.

Economic growth is expected to be 0.4% per quarter, in line with potential growth, especially in the next six months (see figure 4). After that, growth slows down somewhat – mainly due to shrinking net exports and a less positive contribution from private investment.

For a good estimate of the economy, it is important to know how the Dutch economy is doing. However, various indicators currently show a mixed picture in this regard. For example, the prolonged labor market tightness, strong (real) wage growth, expansionary fiscal policy, high house price growth and the still low number of bankruptcies, all point to a strong economic situation.

At the same time, low consumer and product confidence, low productivity growth, high inflation (insofar as supply-driven) and the low CBS Business Cycle Tracer point to a relatively weak economic situation.

To get an idea of the situation, we compare the development of the Dutch economy since the end of 2019 with that of a number of other countries and the eurozone and European Union as a whole. That starting point was chosen because the Covid-19 and energy crises in individual countries showed very different dynamics,[1] so a later starting point can give a distorted picture.

Figure 5 shows that the Dutch economy grew faster, at 8.8%, than the European average of 6.5%. Compared to neighboring Germany, the difference is enormous – that economy has hardly grown. The UK is also lagging behind, probably partly as a result of Brexit. Spain is the only major European country that has kept pace with the Netherlands.

Despite the relatively strong growth, the Dutch economy does not seem to be overheated. On the contrary, according to the European Commission, the so-called output gap[2] in 2024 was even slightly more negative than the European average (see figure 6). This means that since the end of 2019, production capacity in the Netherlands has also grown relatively strongly. This is mainly due to the increase in the employed labor force.

[1] These dynamics can actually differ, for example due to differences in lockdowns or the functioning of the energy market. But the differences can also be statistical in nature, for example the methods used to calculate energy inflation or the production of healthcare. It is undesirable that these differences play a role in the comparison.

[2] The output gap is the difference between actual production in the economy and potential production. A positive output gap indicates overheating of the economy and a negative output gap indicates underutilisation of existing production capacity.

We expect household consumption to make a significant contribution to overall economic growth this year and next, with growth of 1.3% and 1.9%, respectively. The tight labor market and real wage growth are the main causes of this. The government will make a slightly positive contribution to household disposable income this year, but will make a negative contribution next year due to a number of tax increases. We assume that the various domestic and foreign uncertainties will not affect household spending too much. This is a downside risk to the estimate.

Inflation and wages

High inflation, or rather the high price level, is still on the minds of Dutch consumers. Indeed, consumer price inflation has been above the ECB's target of 2% for several years. Although it has fallen since its peak in 2022, this is not happening very quickly. On the other hand, collectively-negotiated wage growth has also picked up considerably in recent years. Figure 7 shows that the difference between the two – the real collectively-agreed wage growth – is quite positive from 2023 onwards, and this is expected to continue this year and next. Cumulatively, collective bargaining wages have currently risen more than 2% more than the price level since the end of 2021 (just before the energy crisis). So that is growth, but limited.

For this year and next year, we expect this gap to widen. While we think inflation will be 3.0% and 2.3% respectively, collective bargaining wages are expected to increase by 5.0% and 4.1%. At the end of 2026, the difference between the collective labor agreement wage and price development since the end of 2021 will therefore already be 5.6%. Real wage growth will therefore make a substantial contribution to the increase in disposable household income in the coming period.

A detailed explanation of our inflation forecast can be found in the most recent inflation monitor. Energy inflation has been making a slightly positive contribution since June and will continue to do so in the coming months, mainly due to more expensive energy contracts. By the end of this year, this will be reversed by lower oil prices. Food price inflation has been sharply lower since July because the year-on-year impact of the increased excise duty on tabacco in June 2024 ended in June 2025. Nevertheless, food price inflation will remain relatively high for the rest of this year and next due to the effect of higher commodity prices, distribution costs and wages. Inflation excluding energy and food (core inflation) will continue to fluctuate around 3% in the coming quarters, mainly due to robust services inflation. This is largely explained by strong wage growth and rent increases. Goods inflation is expected to remain much lower. Upward pressure from the global trade war is offset by expected dumping from China.

The strong wage growth is mainly due to the still very tight labor market. As a result, trade unions can make hefty wage demands, but employers also increase their wage offer of their own accord in order to get enough staff.

Labor market

Unemployment has been at a particularly low and stable level for several years. And that is not because few people are entering the labor market, but rather because employment has developed strongly. Figure 8 shows that the inactive labor force (people of working age but not presenting themselves as available) has shrunk in recent years, while the employed labor force has increased. Unemployment has been between 3.4% and 3.9% since June 2022.

All in all, the net labor participation rate in recent years has been at the highest level ever measured. This contributes strongly to the disposable income of households. At the same time, this also increases job security, which reduces the need for precautionary savings.

Consumption in an international perspective

The disposable income of households has therefore developed quite favorably in the Netherlands in recent years. This is also reflected in the comparison with other European countries (see figure 9). Household consumption rose by 7.1% between the end of 2019 and the first quarter of this year, significantly faster than the European average (around 4%). The difference with Germany and the UK is even greater.

Remarkably, consumer confidence shows a different picture (figure 10). In fact, it fell more sharply over the same period than in most other countries. The level in July 2025 (-14) is comparable to the European average. The relationship between consumer confidence and actual spending therefore seems limited in recent years: Research also shows the same.

The tight labor market also has a downside. It remains difficult for companies to find staff. Labor shortages are still the biggest obstacle to business operations(see Figure 11). The effect of this on business investment is not clear in advance. On the one hand, the labor shortage – and high wage growth – increases the economic incentive to automate, which requires investment. On the other hand, labor and capital are also complementary – for example, people are needed to operate a machine or drive a company car. From this angle, the labor shortage is actually putting a brake on business investment.

Figure 11 also shows that insufficient demand plays only a limited role, and that over time fewer and fewer companies experience no obstacles at all. This implies that companies are willing to expand their production capacity, but that this is not possible for various reasons.

Domestic and foreign uncertainty can also have a downward effect on business investment. Domestically, the fall of the government, grid congestion and the nitrogen problem, among other things, contribute to uncertainty about future profitable production possibilities.

From outside the Netherlands, it is mainly the uncertainty about future trade policy that dominates. American import duties are the most important of these. Although there is an agreement between the EU and the US, this is by no means complete certainty. The agreement is still far from being finished in detail and it is still uncertain how its further implementation can affect European business.

For companies, especially exporting companies, this means uncertainty about their future sales opportunities. On top of that, there are second-order effects: To what extent, for example, are Dutch suppliers to the German car industry affected by the American tariffs? As a result, expansion investments are on the back burner for more than just companies that export directly to the US.

All in all, business investment already contracted slightly in 2024, and we also expect a slight contraction of 0.1% in 2025. We expect that the largest (foreign) uncertainties will have diminished next year, so we expect growth of 1.5%.

Investment growth is not only sputtering in the Netherlands. In the eurozone and the EU as a whole, it is also lower than GDP growth (see figure 12). The Netherlands is in the lower regions here, which may mean that domestic developments are more relevant here than in the rest of Europe. The Netherlands still compares positively with Germany, where there is a sharp contraction.

Investments in housing (existing and new) contracted by 1.5% in the second quarter compared to the previous quarter, almost completely cancelling out the 1.6% growth in that quarter. For the whole of 2025, we expect investment growth of 2.7% and for 2026 of 1.4%. The growth rate for 2025 is relatively high, mainly due to partial recovery from the contraction in 2023 and 2024. Looking ahead, the underlying picture is not rosy.

Although the previously proposed rent freeze has now been lifted, it has at least temporarily put some proposed projects on hold, for example in the Amsterdam region. We expect some recovery, but not completely in the short term. High growth is also not likely in the rest of this year and next. There are indications that the construction chain is stalling. For example, the number of permits granted in the first four months was 18% lower than in the same period last year, while the number of homes for which construction has not yet started, but for which a permit has already been granted, rose slightly by 3% (see figure 13). This indicates a decrease in the start of the number of new construction projects.

We also see a strong increase in the number of homes under construction, while the number of completed homes is stagnating. This indicates a slower construction of homes. The backlog for residential construction at construction companies is still increasing and is historically high. This is normally a good sign, but it may also be a result of the slowing pace at which housing projects are being implemented.

In addition, new-build homes will face stiff competition from the selling off of investor homes until at least mid-2026, especially in the segment of relatively small apartments.

Due to the fall of the cabinet, proposed policy to stimulate housing construction may be delayed. Existing bottlenecks are likely to persist for longer. For the longer term (after 2026), we expect higher growth. More housing construction seems to be an important spearhead in the upcoming parliamentary elections. However, due to the accumulation of obstacles, the scope for an increase in housing production is currently limited.

Housing construction is also facing limitations in the rest of Europe. In the Netherlands, investments have grown faster than the European average since the end of 2019 (see figure 14). In our Germany and Belgium they have even shrunk sharply, especially since 2022. This indicates that there are not only national developments, but also international ones, such as sharply increased material and energy costs.

While the differences between European countries are large for many expenditure components, this is much less the case for government expenditure (see figure 15). Since the end of 2019, government consumption (including civil servants, healthcare expenditure, staff in education, police officers and military personnel) has risen sharply in all countries. In the Netherlands, the growth rate was still slightly higher than the European average. The government has many wishes. There are challenges in the areas of climate, nitrogen, energy transition, housing market, defence and productivity, among other things, for which it wants to free up public spending.

Despite the fall of the government, we assume that government consumption and investment will continue to grow in the coming period. There is still plenty in the pipeline on the above themes, such as the increased NATO standard. We therefore expect consumption growth of 2.5% this year and 1.1% next year and investment growth of 4.8% and 4.2%, respectively; in all cases, growth higher than that of the economy as a whole.

Based on the plans of the current outgoing cabinet, spending could grow even faster, but it has been difficult for several years to actually make the desired expenditure. The government will partly solve this by transferring money to subsequent years (so-called cash shifting), but then there will still be money left over. This so-called underspending will remain high in the coming years (see figure 16).

The open nature of the Dutch economy makes it very sensitive to foreign economic and political developments. It should therefore come as no surprise that the current geopolitical tensions have a depressing effect on economic growth. Foreign demand for our goods and services is growing less rapidly than before, or is even shrinking.

While there remains uncertainty about what future global trade flows will ultimately look like, it is clear that US import tariffs on European goods will increase. The generic rate will be 15%, with exceptions up and down. This largely explains why Dutch exports are currently struggling and are expected to grow only slightly in the coming period. The estimated growth is 2.3% this year and 1.4% next year.

However, the trend towards more protectionism is not the whole story. Figure 17 shows that the growth of world trade relevant to the Netherlands is indeed under pressure, but that exports have shown even lower growth rates in recent years. For 2025, this may be because much of the high import growth from other countries is the result of anticipatory policies on trade tariffs from the US, but this story does not apply to earlier years.

Dutch exporters are therefore losing relative ground in the markets where they operate. This may be partly due to a strong euro and strong growth in wage costs, but stagnating productivity also contributes to this.

The comparison with other countries (see figure 18) shows that this is not the case for all countries. Total exports of the EU member states have grown by more than 12% since the end of 2029 and those of the euro countries by more than 11%, while Dutch export growth over that period was only just over 4%. Countries such as Germany and Belgium are doing worse, but Spain, Italy and many Scandinavian and Eastern European countries are recording higher growth rates. The contraction in the UK shows that leaving the EU has major consequences for international trade.