Dutch economy expected to grow, but the war in the Middle East clouds the outlook

The US-Israeli attacks on Iran, and Iran’s subsequent retaliatory actions, also have economic consequences. In this forecast, we assume an armed conflict lasting several weeks, but given the uncertainty, we have also developed several escalation scenarios. (see box 1).

The effects (in Dutch) – beyond confidence impacts – primarily materialize through rising producer and consumer prices. Shipping through the Strait of Hormuz, a key route for a large share of global oil and gas flows, has largely come to a standstill. This initially pushes up fuel prices, but as the closure persists, the effects gradually spill over into the prices of a growing range of goods and services. Businesses face rising costs, while households experience higher inflation.

International goods transport may also be disrupted. Container traffic through the Strait of Hormuz has halted as well, shipping companies are once again avoiding the Suez Canal, and major (cargo) airports in the United Arab Emirates and Qatar, among others, have temporarily shut down. If the conflict lasts longer or escalates (for example, through damage to key oil and gas facilities in Saudi Arabia and Qatar) energy prices are likely to remain elevated for years. With correspondingly larger economic consequences for both the European and Dutch economies. Box 1 outlines the escalation scenarios we currently take into account.

After growing by 1.9% in 2025, economic activity in the Netherlands is expected to increase by 1.4% this year, followed by 1.5% growth in 2027 (see figure 2). This expansion is driven mainly by higher household spending, as purchasing power improves despite higher inflation caused by the conflict in the Middle East. Government spending also makes a significant contribution, reflecting additional expenditures related to population aging and increased defense budgets (see figure 1). Business investment fell sharply last year but is expected to recover slightly in the coming years. Foreign trade is also set to grow; however, because imports are projected to rise somewhat faster than exports in 2027, the trade surplus is likely to narrow that year.

Economic growth in the coming years is expected to be slightly lower than our estimate of the Dutch economy’s potential growth. This is due in part to the confrontations in Iran and the wider Gulf region, as well as global trade barriers, the nitrogen crisis, and capacity constraints in the electricity grid. As for these last two bottlenecks, which will continue to weigh on economic activity, we expect only limited short‑term solutions. As a result, the number of job seekers is likely to grow somewhat faster than the number of available vacancies, causing unemployment to rise further from an average of 3.9% in 2025 to 4.1% this year, and 4.3% in 2027.

The Jetten government aims to address structural challenges such as the nitrogen crisis and the strained electricity grid, and also intends to increase defense spending as well as investments in innovation and education (in Dutch). To keep the budget balanced, the coalition plans to raise taxes for households and businesses and to cut spending on healthcare and social security. From a macroeconomic perspective, this produces a mixed picture: Higher public investment can stimulate growth, while higher taxes and spending cuts may restrain consumption. Indeed, the Netherlands Bureau for Economic Policy Analysis (CPB) recently also concluded (in Dutch) that, overall, the coalition’s plans are expected to have only a limited effect on economic growth.

Whether events will actually unfold this way depends heavily on the timing and the final shape of the government’s plans. That is always the case, but even more so now, as the Jetten government does not hold a majority in either chamber of parliament (see figure 3). In Denmark, where minority governments are common, “bloc politics” provide predictable support: Parties form stable blocs before elections (a left and a right bloc), and opposition parties within a bloc typically support the governing coalition as so-called støttepartier (supporting parties). The Netherlands does not have this tradition, meaning the Jetten government will likely need to seek support for each individual bill. In the House of Representatives, where the coalition controls 44% of the seats, this means convincing at least one opposition party on the left, or two on the right. In the Senate, where the government holds only 29% of the seats, at least two opposition parties are always required for a majority. Concessions therefore seem inevitable, and the final policies and timelines may differ significantly from the coalition agreement. As a result, the full economic impact of the coalition’s recently announced plans is difficult to predict. Below, we outline the expected direction for each spending component, such as household consumption, alongside our overall projections.

In 2025, consumers purchased 1.5% more goods and services (adjusted for inflation). This year, their spending is expected to increase by 1.1%, followed by 1.5% in 2027, meaning households will make a strong contribution to the projected growth in economic activity. Although unemployment is edging up slightly and consumer confidence has weakened somewhat, the decisive factor will be purchasing power – which is expected to improve. We forecast inflation at 2.6% this year and 1.9% in 2027, while CLA wages are projected to rise by 4.1% this year and 3.4% in 2027. Many retirees will also see their purchasing power increase, as pension funds that have transitioned to the new system have raised their payouts (in Dutch). However, compared with our outlook three months ago, we now expect somewhat lower consumption growth due to the conflict in the Middle East and the government’s planned tax increases, which both dampen the rise in purchasing power.

Business investment fell sharply last year, by an estimated 3.0%. Many firms had frontloaded the purchase of delivery vans into 2024, after which sales dropped by more than 80% in 2025 according to BOVAG, the Dutch sector organization for motor trade (see figure 5). This contributed to business investment dropping to what we estimate is its lowest level since early 2022. We expect companies to start investing more again in the coming quarters, but because of negative carry‑over effects from 2025, total investment will on average still be 0.2% lower this year than in 2026 (see also: “How to read economic figures”). For 2027, we project investment growth of 1.4%. Even so, business investment will remain somewhat below the levels seen before 2025, and also below what we anticipated three months ago. In addition to uncertainty caused by the conflict in the Middle East, higher energy prices, and potential disruptions in trade flows, we also expect the nitrogen challenges, grid capacity constraints, and planned tax increases from 2027 onward to limit a stronger recovery in business investment.

After declining in 2023 and 2024, housing investment – the combined spending on new construction and renovation of residential properties – increased by 3.2% in 2025. Even so, levels remain below the provisional peak year of 2022. We also expect housing investment to fall again in the coming years. For 2026, we project a slight contraction of 0.1%, followed by a decline of 1.5% in 2027. This means that housing construction and renovation will place a modest drag on economic activity. That is a downward adjustment compared with our projections three months ago. Construction starts seem to have hit a ceiling for the time being, while the number of building permits issued has edged down. In addition, challenges that are unlikely to be resolved in the short term – such as congestion in the electricity grid and the upcoming Water Framework Directive – are expected to continue limiting further growth in housing construction.

Government expenditure has increased sharply in recent years, and we expect it to keep rising in the coming years due to expanded defense budgets and the growing demand for healthcare, driven by an aging population. Figure 7, for example, shows that the vacancy rate in the healthcare sector remains exceptionally high. We expect government consumption, driven in part by civil-service and military staffing, to grow by 2.2% this year and by 2.0% in 2027. For government investment, including infrastructure and defense equipment, we project an increase of 3.0% in 2026 and 5.0% in 2027. As a result, government spending will make a strong contribution to economic growth both this year and next. Moreover, our projection is also slightly higher than three months ago, as the new coalition intends to increase spending on areas such as education and defense.

Despite global trade tensions, the Netherlands exported 2.6% more goods and services last year than in 2024. This is higher than previously expected, due to a revision of third‑quarter figures by Statistics Netherlands (CBS) and because trade restrictions turned out to be less of a drag on exports than we had anticipated. Imports rose by 2.5%. As a result, the trade surplus grew substantially in 2025 (see figure 8).

This year, the Dutch trade surplus, already one of the largest in the world for many years, is expected to increase slightly further. We forecast export growth of 2.7%, while imports are projected to grow by 2.4%. That would result in the largest surplus as a share of GDP in more than a decade. For 2027, we expect imports to grow by 3.0%, driven by higher spending from households, businesses and the government (much of which will go toward goods and services from abroad). Exports are forecast to grow by 2.7% that year. As a result, the trade surplus is likely to ease slightly as a share of GDP.