The Dutch economy is growing, albeit slowly. In the final quarter of 2023, the economy grew by marginally more than previously thought. Statistics Netherlands (CBS) initially reported growth of 0.3%, but now the revised figures suggest higher growth of 0.4%. The economy is going in the right direction, but at a very slow pace.
Household spending
Statistics Netherlands points to increased purchasing power for households and a strong labour market as key factors behind the slight uptick in the size of the economy. With inflation falling and earnings continuing to climb, people are spending more money than before on holidays and clothes, according to the figures.
The construction sector
Some outsized industries have a substantial effect on the performance of the national economy. Construction is one of those industries. In the short term, the market expects a decrease in new construction and a substantial drop in housing investments, which will have a knock-on effect for the economy going forward.
However, looking further into the future, there may be reason to be optimistic. Rabobank expects housing investments to begin a slow recovery from the end of 2025 and into 2026. Its analysis suggests that with interest rates no longer rising and house prices pointing upwards, construction of new houses will begin to increase again in the next few years.
A strong labour market
On a more positive note for the immediate future, job growth suggests cause for hope for economic growth. The new numbers from Statistics Netherlands also revise upwards the job growth figures for the final quarter of 2023. According to the most recent analysis, 56,000 new jobs were created as compared to the third quarter – including both employee and self-employed jobs.
The bigger picture
Although growth in the final part of last year was higher than expected, the bigger picture is more muted. On an annual rather than quarterly basis, the Dutch economy is still shrinking. According to the latest numbers from Statistics Netherlands, the economy was around 0.4% smaller than it was at the same point last year.
In 2023 overall, the economy grew by just 0.1%. Even with the new data, that figure has not been revised upwards. That is a much lower growth for the year than in the previous years, 2021 and 2022, which were a recovery period immediately after the economic shock of the Covid-19 pandemic. CBS chief economist Peter Hein van Mulligen notes that ‘consumer and business confidence is still negative’.
Government expenditure
In the Netherlands, government expenditure remains a key driver of economic growth. According to estimates by Rabobank, state investment in the Dutch economy will grow by 4.6% in 2024 and then by 5.4% in 2025. This is partly due to the Dutch government’s international obligations, such as its commitment to NATO to spend 2% of gross domestic product on defence.
However, relying on government investment to stimulate the economy in this way has its downsides. In a time of high inflation and a prevailing cost of living crisis, demands on the state such as healthcare and pensions are already stretched. More government spending is not always easy to come by, and it often means borrowing money at the expense of future generations, or raising taxes which worsens economic problems for the population.
Growing uncertainties
Rabobank, reflecting the likely view of many large financial institutions and investors, is also concerned about uncertainty for the future of the Dutch economy. Specifically, political and regulatory uncertainty make it difficult to do business, invest and commit to longer-term projects in the Netherlands.
Overall, Dutch politics remains in a state of instability because of uncertainty about the policy direction of the next Cabinet. Also, campaign commitments from the election like lowering the state pension age could have a domino effect on the wider economy, worsened by other external factors like war in Ukraine and the Middle East. This environment makes it hard to say with confidence that Dutch economy will noticeably improve and strengthen in the foreseeable future.
Written by Jason Reed