Economic update The Netherlands: 0.4% economic growth in Q3 and a challenging path to cabinet formation

According to the first estimate of Statistics Netherlands (CBS), Dutch GDP grew by 0.4 % quarter-on-quarter in Q3, slightly more than our forecast of 0.3%. Growth in Q3 was driven by increased exports (0.8%), government expenditure (1.1%), and household consumption (0.3%). Investments fell by 1.6%, after rising by 1.6% in Q2. On a year-on-year basis, investments fell by 0.2% compared to Q3 2024.

Furthermore, Statistics Netherlands has revised the Q2 GDP growth upward – from 0.2% to 0.3%. We are therefore raising our estimate of economic growth to 1.7% in 2025 and 1.1% in 2026, compared to 1.5% and 1.0% respectively in September’s Quarterly Economic Report. A more in-depth adjustment of our forecast will follow in December’s Quarterly Economic Report, including an analysis of the expenditure components of GDP: household consumption, government consumption and investment, business and housing investment, and international trade.

In the manufacturing industry, value added – adjusted for price and seasonal effects – rose by just 0.2% QOQ in Q3, down from 1.4% in Q2 (see figure 2).

Q3 data for the subsectors is not yet available in terms of value added. However, production figures up until August are available. The machinery industry and the food and beverage industry showed production growth in August on both a monthly and an annual basis, while the chemicals and metal industries lagged behind. Chemical production fell by 4.2% YOY and basic metals and metal products by 4.9%.

Unemployment reached 4.0% in September, following four consecutive years below the 4% mark. We forecast an average unemployment rate of 3.9% in 2025 and 4.0% in 2026. The labor market will likely remain tight in the coming years, as there is little room to increase the labor supply.

Despite the slight rise in unemployment and sluggish manufacturing growth (at 0.3% in 2025Q3), sentiment among consumers and manufacturers is improving (see figure 3). This spring, confidence indicators were significantly more negative, presumably due in part to uncertainty surrounding the announced American import duties and the fall of the Dutch cabinet.

Producer confidence in the manufacturing industry rose to -0.8 in October, above the long-term average of -1.3. Consumer confidence increased to -27, still well below the 20-year average of -10. In October, manufacturers were more optimistic about their future output in the next three months. Although they are still pessimistic about the size of their order books and about stocks of finished products (not yet sold), this pessimism is decreasing.

Consumers are less negative about their own financial situation than about the general economic climate. On the upside, they are less negative about the future than they were about the past twelve months. The improvement in consumer confidence also seems to be translating into higher voter turnout in the parliamentary elections: 78.4% this year compared to 77.8% in 2023.

The Dutch parliamentary elections that took place on 29 October resulted in a neck-and-neck race between the PVV and D66. Each party obtained 26 seats (out of 150), with D66 winning by a slight margin and therefore taking the lead in the formation of the new cabinet. For a detailed description of the coalition formation process, please refer to this in-depth read by our Senior Rate strategist. The formation will be quite a task, as the other major parties are adamant about excluding the PVV. Some other constellations have also been ruled out during the campaign.

D66 has indicated a preference for a “centrist coalition” with the VVD, CDA, and GL/PvdA, which would hold 86 out of 150 seats in the House of Representatives (the “Tweede Kamer”, the Dutch lower parliamentary house). However, VVD has ruled out joining a coalition with GL/PvdA. Alternatively, a center-right coalition of D66, VVD, CDA, and JA21 would only amount to 75 out of 150 seats. This means that no four-party majority currently seems feasible.

The next cabinet faces major challenges that demand difficult choices and prioritization. After all, the various investment plans supported across parties – such as the housing market, defense spending, and healthcare – require financing. Parties have widely differing preferences in this regard, which often – but not always – run along the traditional “left-right” lines.

Below, we analyze this budget challenge and the economic effects of the proposed policies for the six largest parties: PVV, CDA, GL/PvdA, D66, VVD, and JA21, collectively accounting for over 80% of the seats in the new House of Representatives. We use the calculations by the Netherlands Bureau for Economic Policy Analysis (CPB) and those by former CPB analyst Wim Suyker.

Necessary investments require additional resources

The incoming cabinet faces several major challenges, some of which we have already analyzed in previous publications. For many voters, increasing the housing supply is a top priority. Parties seem to agree on their intentions to speed up procedures, split and transform houses, find more housing locations, extra resources for housing construction, and to combat land speculation. To learn more about this, read our overview article (in Dutch): Parliamentary elections 2025: what plans do the political parties have for the housing market? - Rabobank

The energy transition also remains an important theme in Dutch politics. In addition to climate, geopolitical considerations are becoming an increasingly important reason for many parties to reduce dependence on foreign fossil energy sources. The plans to reduce this dependence vary widely per party. GL/PvdA, CDA, VVD, and D66 aim to rely more on solar and wind power; PVV and JA21 do not. On nuclear energy, once controversial, there now seems to be more consensus. Read more on this topic in our overview (in Dutch): The energy transition and the 2025 parliamentary elections: between ideals and feasibility - Rabobank.

Moreover, the Netherlands has committed itself to increasing defence spending in the context of NATO. Although defence investments in capital goods and R&D can provide a growth boost in the long term and under the right conditions, in the short and medium run the costs outweigh the benefits.

Financing these ambitions, at a time when the costs of healthcare and state pension are rising due to the aging population, requires difficult choices. Parties have different views on spending cuts, tax increases, or increasing the national debt. The effects on economic growth, unemployment, and purchasing power also vary.

Financing by curbing spending elsewhere?

One way to finance these plans is by reducing government spending. The largest components of the government budget – healthcare and social security – are set to grow further under existing policies. Many parties aim to curb this projected growth (see figure 4). But there are also exceptions. In the plans of GL/PvdA, healthcare spending will increase above the baseline, and with JA21 social security, spending would rise above its baseline trajectory. In the plans of the PVV, both will rise sharply, partially due to the proposed reduction of the statutory retirement age to 65 years.

Or raising taxes?

A second option would be to increase government revenues through tax increases. GL/PvdA and D66 are particularly in favor of this strategy, mainly at the expense of businesses. The VVD and JA21, however, are in favor of tax relief for both businesses and households. On balance, the CDA's plans are close to the CPB's baseline.

There is unanimity on some fronts. Almost all parties want to reduce the tax on labor, with the intention of stimulating labor participation and reducing dependence on benefits (Dutch: “Toeslagen”). On the other hand, some parties are (gradually) phasing out the mortgage interest deduction: CDA, GL-PvdA, and D66 want to abolish the deduction step by step, whereas PVV, VVD, and JA21 want to maintain it. Many parties also proposed capping the maximum income for tax friendly pension accrual – a measure that would affect the higher incomes. A major measure proposed by the PVV is the abolition of VAT on groceries.

Rising budget deficits

If the extra expenditure cannot be fully covered within the budget by slowing down expenditure or by increasing taxes, then the budget deficit will initially increase (“ex ante”). However, depending on the way in which the measures taken will affect the economy, this may not always be the case in the end (“ex post”).

For example, a reduction in VAT would lead to a higher budget deficit on the one hand, but on the other hand, it would increase household consumption, which consequently would increase tax revenues and partly improve the budget deficit. The CPB's calculations are ex post and include both the initial effect and the pass-throughs. For CDA, GL/PvdA, D66, and VVD, the ex post effect on the budget balance is relatively small, while for JA21 there is a strong deterioration. In Wim Suyker's assessment of the PVV plans, only the ex ante effect has been calculated. This complicates a comparison between the plans of the PVV and the other major parties.

In nine out of ten party programs that were assessed by the CPB, the budget deficit in the coming cabinet period would remain within 3%. Only JA21 would end up with a deficit of 3.6% in 2030. During the government's term of office, the national debt is expected to remain within 60% of GDP in all plans calculated by the CPB. But further into the future, government debt would rise sharply, even beyond 100% of GDP (figure 7).

In doing so, all parties deviate from the advice of the official government study group on budgetary flexibility to reduce the budget deficit to around 2% of GDP in consideration of the aging population, precisely in order to limit the further increase in government debt.

Macroeconomic effects 2027-2030

CPB projects GDP growth of 1.3% annually and inflation of 2.2% assuming unchanged policy, for the 2027-2030 horizon. Party plans have limited impact on these figures but differ in effects on purchasing power and unemployment (see figure 8). No calculation is available for the PVV. According to Wim Suyker, "The program increases economic growth in the next cabinet term, lowers unemployment and pushes up inflation."

In these calculations, the economic effects for later years – beyond the coming cabinet’s term of office – remain largely out of the picture. Investments in education and innovation, and a reduction in taxes on businesses contribute to economic growth in the long term. We recently wrote this (Dutch) article about the importance of investments in labor productivity and sustainability for future earning capacity: Sustainable earning capacity on the map - Rabobank