Netherlands Country Risk Report & Analysis

Economic activity slipped back into contractionary territory in the first quarter of 2024 due to a drop in exports after ending 2023 with positive growth following three consecutive quarters of contraction. Despite GDP growth staying at +6.3% compared to end-2019 (EZ average +3.3%), the Netherlands’ faster post-Covid rebound has narrowed compared to Eurozone peers since mid-2022. In particular, private consumption suffered due to elevated uncertainty and surging prices eroding households’ and corporates’ consumption behavior. Net trade and investment activity have remained volatile over the recent quarters. We expect activity to gradually recover from the second half of 2024 in parallel with resuming private spending, with overall GDP growth likely to reach +0.4% in 2024 (2023: +0.2%).

Inflation dynamics have been quite bumpy in recent months after declining vigorously since October 2023, when strong base effects started to play a role. Slowly easing prices and strong wage growth should provide some breathing room for private consumption, which will gradually resume in 2024-25.

The Dutch labor market remains very strong and tight; many companies are looking for workers while few people are looking for jobs. As a consequence, the job vacancy rate has remained at a record high and there is a huge shortage of staff in sectors such as ICT, construction, healthcare and education. The high inflation environment and labor market tightness have led to a sharp rise in wages. The government has also been gradually increasing the minimum wage but disinflationary pressures should ease any fears of wage-price spiral in the Netherlands.

The new coalition government has committed to fiscal prudence and set a maximum 2.8% government budget deficit and a target for national debt below 60%. Still, the increase from the 0.3% deficit in 2023 is mainly being driven by growing expenditure on social benefits and defense, as well as an increase in public investments. Moreover, recently presented policy measures are likely to keep fiscal costs higher over the coming years.

The Netherlands is one of the most open economies in the world and among the best in terms of technology and innovation. It offers excellent infrastructure – including the largest port in Europe – a competitive business climate and a well-educated workforce. The Dutch tax system features several incentives to stimulate innovation and business activities and, as an internationally oriented country, the Netherlands is home to many highly educated foreign workers.

A new coalition government took office on 02 July after seven months of negotiations following the November 2023 elections. The former government led by long-serving Prime Minister Mark Rutte collapsed in July last year when the four parties of the ruling coalition clashed over an immigration bill to reduce asylum seekers. Wilders’ Party for Freedom PVV won the election and obtained 37 seats (out of 150 seats); it later agreed to form a coalition with the VVD, farmers’ party BBB and the New Social Contract party.

The Netherlands will receive EUR5.4bn in grants from the NGEU funds and did not apply for EU loans as its cost of borrowing remains low. The Dutch plan is structured around six pillars: promoting the green transition; accelerating the digital transformation; improving the housing market with a focus on building renovation; strengthening the labor market, pensions and future-oriented education; strengthening the public health sector and pandemic preparedness and tackling aggressive tax planning and money laundering.