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Economy and Finance

Economic forecast for Netherlands

The latest macroeconomic forecast for Netherlands. 

The Dutch economy grew strongly in the first half of 2022 on the back of solid export and investment growth. A decrease in households’ real disposable income, tightening financial conditions and the uncertainty caused by Russia’s invasion of Ukraine are, however, expected to lead to a modest contraction of economic activity in the second half of the year. Headwinds are expected to persist in both 2023 and 2024 and annual growth is forecast to slow down to 0.6% and 1.3% respectively. For 2023, the authorities have announced a package of measures to mitigate the impact of high energy prices, which is expected to support domestic demand and prevent a more substantial slowdown in GDP growth. The measures taken by the government are forecast to increase the budget deficit to 4.0% of GDP in 2023. With the expiry of the support measures at end of 2023, the deficit is set to decrease to 3.1% of GDP in 2024.

Last update (forecast)

Indicators2021202220232024
GDP growth (%, yoy)4,94,60,61,3
Inflation (%, yoy)2,811,64,23,9
Unemployment (%)4,23,74,34,3
General government balance (% of GDP)-2,6-1,1-4,0-3,1
Gross public debt (% of GDP)52,450,352,453,2
Current account balance (% of GDP)7,25,75,36,9

A strong economy at a turning point

Following strong annual GDP growth in 2021, the Dutch economy continued to grow rapidly in the first half of the year, driven by substantial investment growth and a large contribution from net trade. However, the surging inflation, in part caused by Russia’s war of aggression against Ukraine, is starting to weigh on the Dutch economy. With price increases far exceeding wage growth, households are seeing their real disposable income decrease, which is forecast to lead to a small contraction in consumer spending in the second half of 2022. At the same time, tightening financial conditions, labour shortages and the increased uncertainty about the economic outlook are expected to lead to a decline in investment activity.
 
The Dutch economy is forecast to stagnate in the third quarter and to contract modestly in the fourth quarter. Overall, annual GDP growth in 2022 is forecast at 4.6%.

Economic conditions in 2023 remain challenging, with an expected weak external environment, further tightening of financial conditions and high international energy prices. As a result, both export and business investment growth are set to be subdued throughout 2023. To alleviate the impact of high inflation on households’ budgets, the authorities have announced a set of support measures, which are expected to prevent a further slowdown in private consumption growth. Government consumption and investment are projected to grow robustly and contribute substantially to the forecast annual GDP growth of 0.6%.  
Real disposable income growth is expected to remain limited in 2024 as the support measures put in place by the authorities are set to expire by end-2023. Investment growth is forecast to pick up slightly and net trade to contribute positively to growth. Uncertainty is, however, expected to remain high and GDP is forecast to grow moderately in 2024 at 1.3%.

A tight labour market 

The Dutch labour market remains tight, though unemployment has been gradually picking up in recent months. With global demand weakening, the unemployment rate is forecast to pick up further, from 3.7% in 2022 to 4.3% in 2023 and 4.3% in 2024. Overall, the forecast unemployment rates in 2023 and 2024 remain low in historical perspective. Nominal wage growth is on a clear upward trend, reflecting both the tight labour market and the high inflation, and is expected to increase to 4.5% in 2023.

A strong economy at a turning point

Following strong annual GDP growth in 2021, the Dutch economy continued to grow rapidly in the first half of the year, driven by substantial investment growth and a large contribution from net trade. However, the surging inflation, in part caused by Russia’s war of aggression against Ukraine, is starting to weigh on the Dutch economy. With price increases far exceeding wage growth, households are seeing their real disposable income decrease, which is forecast to lead to a small contraction in consumer spending in the second half of 2022. At the same time, tightening financial conditions, labour shortages and the increased uncertainty about the economic outlook are expected to lead to a decline in investment activity.
 
The Dutch economy is forecast to stagnate in the third quarter and to contract modestly in the fourth quarter. Overall, annual GDP growth in 2022 is forecast at 4.6%.

Economic conditions in 2023 remain challenging, with an expected weak external environment, further tightening of financial conditions and high international energy prices. As a result, both export and business investment growth are set to be subdued throughout 2023. To alleviate the impact of high inflation on households’ budgets, the authorities have announced a set of support measures, which are expected to prevent a further slowdown in private consumption growth. Government consumption and investment are projected to grow robustly and contribute substantially to the forecast annual GDP growth of 0.6%.  
Real disposable income growth is expected to remain limited in 2024 as the support measures put in place by the authorities are set to expire by end-2023. Investment growth is forecast to pick up slightly and net trade to contribute positively to growth. Uncertainty is, however, expected to remain high and GDP is forecast to grow moderately in 2024 at 1.3%.

A tight labour market 

The Dutch labour market remains tight, though unemployment has been gradually picking up in recent months. With global demand weakening, the unemployment rate is forecast to pick up further, from 3.7% in 2022 to 4.3% in 2023 and 4.3% in 2024. Overall, the forecast unemployment rates in 2023 and 2024 remain low in historical perspective. Nominal wage growth is on a clear upward trend, reflecting both the tight labour market and the high inflation, and is expected to increase to 4.5% in 2023.

Surging inflation 

The increased uncertainty regarding the supply of gas has led to surging energy prices in recent months. In addition, price pressures have broadened, with core inflation continuing to pick up. As result of this, HICP inflation reached 17.1% in September and 16.8% in October, among the highest in the euro area. Energy prices are expected to remain elevated in the remainder of 2022 and 2023 before declining in 2024. However, the Dutch authorities have announced a price cap on electricity and gas prices, which will apply until end-2023. The price cap is forecast to substantially lower annual inflation in 2023 to 4.2%, down from 11.6% in 2022. Core inflation is set to peak in the beginning of 2023 and gradually decline thereafter. Headline annual inflation is projected to decrease to 3.9% in 2024, with the planned expiry of the price cap on energy preventing a sharper decline in headline inflation.

Support measures drive up deficit in 2023

In 2022, the deficit is forecast to decrease to 1.1% of GDP, driven by higher revenues from income taxes and Dutch gas fields, while spending on COVID-19 related measures is projected to decrease.

For 2023, the government announced a package of both temporary and structural support measures to mitigate the impact of high energy prices on both households and companies. This package includes a price cap on electricity and gas, the extension of a reduction in the excise duty on fuel and the increase of an energy compensation benefit scheme for lower-income households until end 2023. Besides these temporary interventions, different structural measures, such as the rise of the minimum wage by 10% and a decrease in taxes on labour income are planned to enter into effect in 2023. Based on the government’s estimates, the fiscal cost of the package is expected to be between EUR 20 billion and EUR 30 billion (some 2 - 3% of GDP), with the cost of the price cap depending on how energy prices develop.

Partly as a result of this large expansionary package, the government deficit is forecast to increase to 4.0% in 2023. As the temporary measures expire at the end of 2023, the deficit is projected to drop slightly to 3.1% in 2024. 
Government debt is projected to increase from 50.3% of GDP in 2022 to 52.4% in 2023 and 53.2% in 2024.