OECD Economic Surveys: Netherlands 2025

GDP is projected to grow by 1.3% in 2025, driven by stronger private consumption owing to rising real incomes, before moderating to 1.1% in 2026 as external demand weakens. The September 2024 fiscal package supports purchasing power and exacerbates inflation risks. Rising geopolitical and trade tensions have heightened uncertainty around the economic outlook.

Strong wage growth is set to keep outpacing consumer price inflation, sustaining household incomes but maintaining price pressures, especially in labour-intensive services. Inflation will remain elevated at 2.5% in 2026 (Table 1), as service prices continue to exert upward pressure. Direct and indirect effects of slowing global trade, along with falling consumer confidence and business sentiment, are expected to weigh on GDP growth.

Downside risks are significant. Further weakening in global trade, disruptions to supply chains, and higher tariffs on key export sectors, such as machinery, chemicals, and electronics, could directly weigh on export growth. A sharp contraction in demand from major trading partners would not only reduce exports, but could also depress confidence, with knock-on effects on private consumption and business investment.

The fiscal stance is expansionary, with rising spending on healthcare, defence, and housing, alongside lower revenue from personal, corporate, and environmental taxation. The fiscal deficit is projected to widen from 0.9% of GDP in 2024 to 2.8% in 2026 (Figure 2). Given skills and labour shortages, the budgetary expansion will push up services price inflation, even as Euro area monetary stance might be insufficiently tight to contain price pressures in the Netherlands.

Financial risks appear contained but continued monitoring is warranted. Household mortgage debt remains high. Household borrowing has increased since mid-2023 as house prices have picked up, raising macroeconomic vulnerabilities. The Dutch central bank (DNB) extended capital buffer requirements for commercial banks, but further measures should be considered to strengthen financial resilience. Reducing the loan-to-value limit, currently at 100% and high in international comparison, could improve macro-financial stability.

The Netherlands has long maintained strong public finances and fiscal buffers. The September 2024 fiscal package marks a shift in policy priorities, with significant increases in spending on healthcare, housing, and defence, and spending cuts on knowledge, skills, and innovation. To ensure fiscal sustainability and avoid undermining growth potential, budgetary prudence is key, including reversing cuts to productivity-enhancing public investments and containing long-term spending pressures, as well as enhancing tax efficiency.

Current fiscal plans risk eroding fiscal sustainability and long-term growth. The loosening of budgetary policy raises concerns, considering spending pressures from ageing and climate change, as well as commitments to increasing defence spending. The plans are likely to breach the EU’s reformed fiscal framework, requiring deficit-reducing measures to slow the growth of primary expenditure. The expansion is partly offset by spending cuts that could depress productivity, weaken trade competitiveness, and slow the green transition.

The fiscal package for 2025-2028 fails to address long-term spending pressures. Proposed consolidation measures are politically challenging, including reducing public administration staff by 20% and cutting the Netherlands’ contribution to the EU multi-annual financial framework. Although operating within a robust fiscal framework, public finances are set to deteriorate beyond the government’s term. The current practice of announcing fiscal measures on an annual basis, rather than pre-defining them in transparent multi-year plan, can create incentives to postpone politically difficult but necessary decisions on revenue-raising measures and spending cuts. Moreover, expenditure ceilings are fixed for the duration of the government term and not rolled forward, shortening the planning horizon each year, creating uncertainty.

The system of taxes and benefits is overly complex, discouraging labour supply despite pervasive skills and labour shortages. Individuals, especially single parents, refrain from entering the labour market or working more for fear of losing benefits. High tax wedges, cultural preferences regarding care responsibilities, and limited availability of childcare services weaken work incentives, especially for women.

Aggressive tax planning has been curbed significantly, and levels of perceived corruption are low, but gaps exist regarding lobbying regulation. There is no mandatory lobbying register for all branches of government. The only existing register, for MPs in the Lower Chamber, lacks essential information. No mechanism exists to track officials’ post-tenure movements into industries they used to regulate.

The Netherlands has made significant progress in decarbonisation, supported by a strong policy framework under the national Climate Act, and despite the country’s industrial specialisation in emission-intensive activities and its position as a major logistics hub. Yet, strengthening mitigation and addressing electricity grid congestion is urgent to meet 2030 climate targets, achieve energy security, and reach net zero. Broadening adaptation efforts beyond water risks is essential to reduce the economic costs of climate change.

The Netherlands is unlikely to reach its 2030 climate targets due to delays in policy implementation. Additional and stronger mitigation efforts are needed. The gradual introduction of the EU Carbon Border Adjustment Mechanism could attenuate competitiveness concerns vis-à-vis non-EU countries, creating the opportunity to remove significant implicit fossil fuels support.

Recent shifts in climate policy create uncertainty and jeopardise the green transition, especially the goal of reaching net zero by 2050. Consistency is needed regarding policies and timelines beyond 2030. Sector-specific priorities, in line with EU impulse, are also required to provide long-term predictability and unlock the necessary investments.

Severe grid capacity constraints are a critical obstacle to electrification (Figure 3), delaying the net zero transition and heightening energy security risks. Ensuring that all permitting processes are performed at the regional level, and standardising application requirements and assessments across regions would facilitate coordination between government agencies, system operators, and end users.

Adaptation measures for non-water climate risks remain underdeveloped, even as Dutch water resilience strategies are among the most advanced globally. Expanding adaptation policies to address heat stress, drought, and extreme rainfall can significantly reduce the cost of climate damage from an estimated EUR 8.1-9.6 billion per year by 2100 to less than EUR 2 billion.

Housing supply has not kept up with demand and changing demographics (Figure 4), resulting in an estimated housing shortage of about 400 000 homes. Housing affordability has emerged as a key challenge, further aggravated by policy distortions favouring homeownership over rental housing. Expanding housing supply through streamlined permitting and land-use policies against land speculation is essential, but these measures must be complemented with long-term housing market reforms.

Housing policies strongly favour homeownership, with generous tax advantages, such as mortgage interest deductibility and low imputed rents. Additionally, a borrower friendly mortgage market and affordability measures for first-time buyers further drive up demand and housing prices. Reducing homeownership tax advantages is essential to create a more balanced housing market and reduce wealth disparities between homeowners and renters.

The private, non-regulated rental market is small, providing limited housing options for middle-income households. Frequent policy changes, including the recent expansion of rent controls to the mid-price segment, have further deterred investment and reduced landlords’ incentives to keep their property in the rental market. A stable long-term housing strategy is essential to balance investment incentives in the rental market with reducing fiscal support for homeownership to ensure a sustainable supply of affordable housing.

A complex regulatory framework further dampens housing supply and increases costs. Stringent zoning laws, building regulations and long appeal procedures lengthen permitting timelines. Recent uncertainty regarding the allocation of nitrogen rights also weighs on housing development.

Construction has been held back by land speculation, where underdeveloped residential land is held for profit rather than for development. Implementing a one-off levy on increases in land-value ensuing from land-use changes could undermine speculation and accelerate construction.

The Netherlands’ export performance is strong, benefiting from the country’s strategic location as Europe’s gateway, low trade barriers, and efficient border procedures. However, strong reliance on trade and global value chains exposes the economy to global shocks, geopolitical fragmentation, and supply chain disruptions. Sustaining trade competitiveness calls for continuous reforms to strengthen supply chains, leverage digitalisation for trade, and improve the domestic business environment to boost innovation.

The strong integration into global value chains creates vulnerabilities, especially due to external dependencies and supply chain disruptions. Growing geopolitical fragmentation and the potential weakening of trade linkages underscore the need for robust monitoring systems. Continuing to enhance data collection and regularly update the monitoring framework is not only key to identifying emerging vulnerabilities in supply chains but should also inform the development of a national trade risk strategy to prepare and minimise the exposure to global trade disruptions.

A rapidly changing global economy has shifted the Netherlands’ focus towards enhancing economic resilience and international competitiveness. The ongoing update of the country's industrial strategy should prioritise fostering innovation and competition. Support measures should be competitively and transparently targeted, avoiding excessive market intervention that favours incumbents or discourages new entrants. A non-distortive approach would also limit the inherent risks to industrial policies of potentially undermining economic resilience and incurring substantial fiscal cost.

A dynamic business environment is crucial to remain competitive internationally, yet business dynamism is low compared to peer countries. Access to financing for enterprises with high investment needs, but also high risk of potential failure remains a challenge. Ensuring that budget cuts on innovation programmes do not impede on a balanced approach to business funding for companies across different growth stages would support the development of innovative enterprises.

Dutch businesses are well placed to raise competitiveness through digitalisation and adoption of new technologies. However, digital adoption rates remain uneven, with small and medium-sized enterprises lagging larger firms (Figure 5). Persistent labour shortages in ICT fields and a significant share of workers reporting insufficient computer and software skills further limit the ability of firms to integrate automation and digital tools. Expanding targeted training programmes to bridge digital skills gaps will be essential to support SMEs’ participation in trade and ensure that digitalisation translates into trade competitiveness gains.