The Dutch economy

Economic slowdown as a result of increased interest rates

Since the end of the Covid-19 pandemic in late 2021 and the start of the war in Ukraine in early 2022, the inflation rate has increased significantly, exceeding 10.0% in the second half of 2022. In an attempt to slow the economy and therefore inflation, the ECB raised the deposit rate ten times in a row to 4.0% (ECB, 2023). The rate hike proved effective; inflation reached its highest point in September 2022 (14.2%) and fell to 1.2% by December 2023 (CBS, 2024). Inflation was 3.8% for the entire year of 2023 (CBS, 2024), which is less than half of the 2022 rate.

Economic growth has slowed significantly due to the higher interest rates. Whereas the economy grew by 1.9% in Q1 of 2023, the Netherlands entered a mild recession following moderately negative growth in Q2 and Q3 2023 (CBS, 2023). In Q4 economic growth was -/-0.5% on an annual basis and +0.3% on a quarterly basis. This means that economic growth in 2023 as a whole was +0.1% (CBS, 2024).

Despite limited economic growth, the labour market remains strong. The high demand for labour resulted in a low unemployment rate of 3.5% in November 2023. The number of job openings exceeded the number of job seekers (a ratio of about 120 to 100), indicating that the labour market is very tight. High inflation is also resulting in strong wage growth, which reached 6.9% in December 2023. The average wage growth in total for 2023 was 6.1% (CBS, 2024).

Since late September 2023, the ECB has held the interest rates steady at 4.0%. In response to this pause and due to the expectation that the ECB will lower the interest rate in the near future, 10-year government bond rates started to decline, reaching 3.3% at the start of October and 2.3% at the end of December 2023 (Investing.com, 2024).

Economic outlook is more positive

The economic outlook is quite favourable. Although economic growth remains low due to relatively high interest rates, there is no sign of a major recession. Oxford Economics, CPB, ING, DNB, Rabobank and ABN AMRO expect, on average, moderate economic growth of 0.9% in 2024 and 1.2% in 2025. Due to the slowing of economic growth, the unemployment rate is expected to increase slightly to 4.1% in 2024 and 4.3% in 2025.

The inflation rate is expected to continue its downward trend and reach 2.8% in 2024 and 2.2% in 2025 (Oxford Economics, 2023).

In the long term, the 10-year government bond rates are expected to remain relatively stable at 2.8% in 2024 and 2.7% in 2025, and decline to 2.0% in 2027 (Oxford Economics, 2023).

Figure 7: Marco-economic situation Dutch Economy

^{Source: CBS, 2024; Investing.com, 2024; ING, 2024}

Figure 8: ECB deposit rate and 10-yr government bond rate

^{In percentage}

^{Source: ECB, 2023; Investing.com, 2024}