Dutch household and government spending drives growth, increase in exports expected despite geopolitical turbulence

The Dutch economy grew by 0.4% in Q4. After a sluggish 2023 and a small contraction in Q1 of 2024, three quarters of growth followed, bringing the annual figure for 2024 to 0.9%, in line with the forecast from our previous economic quarterly report. Household consumption and government spending in particular, made a positive contribution to gross domestic product (GDP) growth in 2024, as did net exports. For the coming years, we expect economic growth to continue, with GDP increasing by an average of 1.7% this year and 1.2% in 2026.

Inflation is expected to remain above 3% for a prolonged period, with estimates of 3.6% in 2025 and 3.1% in 2026. Despite this, we expect a significant growth in household consumption, reaching 2.2% in 2025 and 1.7% in 2026.

High employment and further wage growth are expected to provide households with more financial leeway, despite high inflation. Unemployment rose slightly in January, from 3.7% to 3.8%. This increase was mainly due to more people transitioning from the non-labor force to actively seeking work. However, these individuals did not immediately find employment and were therefore classified as unemployed, according to Statistics Netherlands (CBS). Unemployment has remained very low and stable for a long time.

Since October 2021, unemployment has been below 4%, and for almost two years (from May 2023 to December 2024), it stayed within an extremely narrow range of 3.5% to 3.7%. For 2025 and 2026, we expect unemployment to remain low, at 3.8% and 3.9%, respectively. Although the number of bankruptcies is forecast to rise in the coming years, according to our most recent bankruptcy forecast (in Dutch) the share of companies going bankrupt will remain well below the long-term average.

Partly due to the tight labor market, wages are rising, with increases of 4.8% in 2025 and 4.1% in 2026. Compared to the period before the Covid pandemic, the catch-up with inflation is nearly complete. Real wages – adjusted for inflation – are expected to return to the level of 2019 (see figure 2). With the persistently tight labor market, wages will continue to at least keep pace with the price level in 2026.

For export-oriented sectors, these wage increases could pressure competitiveness if unit labor costs rise faster in the Netherlands than in competing countries. Our latest study on wage and productivity growth (in Dutch) across more than twenty exporting sectors shows that unit labor costs in the Netherlands increased more rapidly from 2015 to 2023 than in the eurozone overall. However, this trend varies greatly by sector.

Government spending includes both investments, such as the construction and expansion of infrastructure, and “consumption",[1] such as spending on education, healthcare, and defense, which also covers personnel wage costs.

We anticipate a steady increase in government consumption, with a growth of 2.0% in 2025 and 1.5% in 2026. This rise is largely driven by increasing healthcare costs in an aging society.

Compared to government consumption, government investment is relatively small. However, we expect significant growth in these investments, with a projected increase of 4.0% in 2025 and 6.0% in 2026. According to government policy plans, investments will focus on infrastructure, the energy transition, and defense.

[1] From a macroeconomic perspective, benefits do not count as government expenditure but are an income transfer from taxpayer to benefit recipient.

Fixed capital investments increased by 2.9% in Q4 compared to Q3, mainly due to a peak in vehicle investment of 23.7%. This exceptionally strong growth was driven by entrepreneurs who advanced their investments in delivery vans, anticipating the abolition of the private vehicle and motorcycle (BPM) tax exemption for vans running on diesel, petrol or gas, and stricter environmental requirements in some cities as of January 1, 2025.

Due to the peak in vehicle investments, we expect a sharp dip in this type of investment in the first quarters of 2025. However, vehicles are a relatively small category compared to other investments such as housing and infrastructure (see figure 3). Housing investment eased slightly in Q4 2024 and is in line with our previous forecast at -1.0% YOY. We anticipate a 5% growth in housing investment[2] this year, followed by and 1.8% growth in 2026. This indicates that investments will make a positive contribution to GDP growth in both years.

[2] Housing investment occurs in the case of a new construction, renovation, or expansion. The sale of an existing home to a new owner is therefore not considered housing investment in macroeconomic terms.

In Q4, imports saw an unexpected drop of 0.6%, while exports experienced a modest increase of 0.4%. This decline in imports contributed to an increase in net trade (exports minus imports), which positively impacted economic growth in Q4. On an annual basis, net trade grew slightly in 2024. Exports increased by 0.4%, while imports increased by only 0.1%.

The decline in imports in Q4 was mainly visible in services, but imports of goods, from both EU and non-EU countries also declined slightly. Chemical products and mineral fuels, such as natural gas, fell sharply. There was also a decline in service exports. Exports of goods, on the other hand, increased significantly by 1.2% in Q4, particularly goods produced in the Netherlands, such as foodstuffs, machinery, and transport equipment.

For this year and next, we expect an increase in international trade. Export volumes are expected to grow by 2.4% this year and 2.0% in 2026. We also expect imports to rise, by 1.7% this year and by as much as 3.0% in 2026. Although both exports and imports are growing, this results in a decline in net trade in 2026, thereby contributing negatively to GDP growth.

An uncertain factor is the development of international trade. Our previous forecasts already considered a potential victory for Donald Trump in the US presidential elections, which was expected to lead to an increase in US import tariffs, with an upward effect on inflation and a downward effect on international trade.

The US is the fourth-largest export destination for goods produced in the Netherlands (see figure 5). Additionally, some exports to other EU countries are ultimately destined for the US. For example, Dutch manufacturers supply the German car industry.

Since taking office, US President Donald Trump has announced various import tariffs. Tariffs on imports from Mexico (25%), Canada (25%), and China (20%) are already in effect, while a 25% tariff on all imports of steel and aluminum into the US from all countries will soon be implemented. We have already incorporated most of these tariffs into our quarterly estimates, which also account for the anticipated import tariffs on goods from Europe. In our base scenario, we assume a US import tariff of 5% on all goods from the EU (equivalent to 3.8% on all imports, including services) and a European counter-tariff of 3% on American goods.

However, actual tariffs may be higher than expected, and we have calculated various scenarios for this (see box). For example, Trump recently mentioned tariffs of 25% on goods from the EU. It is unclear whether this applies to all goods or select categories such as motor vehicles, computers and electronics (chips), pharmaceutical products, wood, fish, and fertilizer. The variants below show the consequences for the Netherlands (see box).

We have analyzed both scenarios and compare them with our baseline forecast. In all scenarios, we assume that the EU will take countermeasures similar to those of the US. However, some goods are exempted because the EU is highly dependent on the US for them: oil, gas, medical and pharmaceutical products, and defense equipment and ammunition.

At the sector level, the effects can vary greatly. If the US imposes import tariffs on selected products, the sectors exporting these directly tariffed products will suffer the most. Additionally, the water and air transport sectors will face substantial consequences due to the reduced volume of goods being transported.

If the US applies a tariff to all European goods, the sectoral differences are less pronounced. However, all sectors that export a significant amount of goods to the US will be severely impacted. Our analysis indicates that many industrial subsectors, such as mechanical engineering or the chemical and pharmaceutical industries, are strongly connected to the US. Moreover, Dutch business services and IT sectors are also indirectly affected.