The Dutch economy grew strongly in the first half of 2022, but is expected to have slowed down markedly in the second half. High inflation rates have reduced households’ purchasing power, while tightening financial conditions, labour shortages, increased input prices and uncertainty are weighing on business investment. This resulted in a small contraction in economic activity in the third quarter of 2022 and is expected to have led to stagnation in the fourth quarter. Annual growth in 2022 is estimated at 4.4%.
Private consumption growth is set to remain subdued in 2023, with increasing wage growth and support measures from the government only partially offsetting the loss in purchasing power caused by increased prices. Business investment is expected to remain weak as financial tightening continues while labour shortages persist. Overall, growth in 2023 is forecast at 0.9%. Growth is projected to pick up to 1.3% in 2024 on the back of easing inflation and a partial recovery in households’ purchasing power. Decreasing input prices for raw materials are also expected to lead to a pick-up in investment growth.
HICP inflation in 2022 surged on the back of increasing energy prices and peaked in September at 17.1% y-o-y. Since then, energy price inflation has come down and headline inflation decreased to 11% y-o-y in December. For 2023, the authorities have put in place a price cap for gas and electricity to protect consumers from further energy price spikes. Core inflation is forecast to come down slightly but remain elevated throughout 2023, also supported by increasing wage growth. Overall, the decrease in energy prices and the introduction of the price cap are expected to bring headline inflation down to 4.5% in 2023, from 11.6% in 2022. Inflation is forecast to slow down to 2.7% in 2024 as energy prices ease further and core inflation slowly continues to decelerate.