Economic outlook

The Dutch economy faces major challenges, including a persistent core inflation. Geopolitical uncertainties and possible increases in import tariffs by major economies such as the U.S. will leave a mark on world trade. These developments could also affect the Dutch economy. On the other hand, lower ECB policy rates and increasing consumer spending offer opportunities for further economic growth. It remains crucial to address obstacles such as labour shortages and grid congestion. This will ensure economic growth and an attractive investment climate in the medium term.

Dutch core inflation persistent

In most European countries, the decline in inflation has continued. For major economies such as France, Spain and Italy, it has been around the desired 2% - or even below - for some time. Other major economies are also showing a clear decline in that direction. On this basis, the ECB has implemented several policy rate cuts totalling 100 base points. This compares sharply with interest rate cuts by the Federal Reserve (The Fed) in the United States and the Bank of England (BoE) in the United Kingdom.

In the Netherlands, core inflation is more persistent - the last quarters of 2024 even saw an inflation increase. This is partly due to the wage price spiral and government policies, such as the increase in the excise tax rate on alcohol and tobacco. In addition, part of the inflation is caused by the fact that many companies have implemented disproportionate price increases, often exceeding cost increases. For example, the profit ratio of many Dutch companies rose much faster than in the rest of the EU. Due, among other things, to the rise in healthcare costs, the increased VAT rate in the hotel sector and expected rent increases, inflation will remain high in the first half of 2025. After this, we expect core inflation to fall. Inflation will be around the desired 2% by the end of the year in the Netherlands as well.

Decline in policy rates continues

CBRE expects the ECB to further reduce the base rate in 2025, bringing it to just above 2% by the end of 2025. By comparison, the base rate was 3.15% at the end of 2024. This is partly due to lower inflation in the larger European economies. For this reason, a further cut in policy rates seems justified. On the other hand, there are geopolitical developments leading to continued tensions and uncertainties. Increased import tariffs introduced by other countries will have an effect on the European economy - more on this below. A reduction in policy rates should help to ensure that the European economy can absorb that impact.

Labour market tightness remains, despite slight increase in unemployment

The number of jobs will increase in 2025, but this increase is expected to be less than last year. As a result, job security in the Netherlands remains high. Still, CBRE expects unemployment to rise slightly: from 3.7% in 2024 to 3.8% in 2025, to as much as 4.0% in 2026. Despite this increase, unemployment is still historically low. There will continue to be differences in tightness between different sectors, but overall wage growth will be more moderate - partly because inflation will also decline. However, wage growth is higher than inflation, which has a positive effect on purchasing power.

Consumer spending increases

Expectations for consumer spending in 2025 are positive. More was spent last year than before. Even more striking is that for the first time in three years more products were sold. CBRE expects this trend to continue in 2025.

The expected spending increases are supported by figures on consumer confidence, which is increasing. Consumers even indicate that they are positive about their financial situation for the next 12 months. This is partly because the biggest increase in inflation is behind us and many wages have risen, increasing purchasing power. The continuing tight labour market also provides security and thus contributes to confidence in one's financial situation. Typically, this leads to more spending. Therefore, 2025 is expected to be a stronger economic year than the previous two years.

Increased spending will have a positive impact on the economy. Evidently, for retailers it is beneficial if more products are sold. Moreover, the industrial sector - which saw a downturn last year - will also be pleased with this development.

Further increase in bankruptcies, but stabilization in sight

The number of bankruptcies in the Netherlands is still expected to increase slightly by 5-10% in 2025, following an already sharp increase in 2024. Many companies are experiencing pressure on their margins due to increased wage, transport and rental costs. In some cases, debts from the corona period must also be paid off. More and more business owners are experiencing debt as problematic. This is especially a big problem among restaurants and cafes. This was already the case in 2023, but the problem has only increased over the past year. The same is also true to a lesser extent in the retail sector. For hotels and in the industrial sector, debt is also high, but has decreased.

Mixed picture industry

CBRE expects production in the industrial sector to show small growth in 2025. A positive development, as the sector struggled with a decline over the past year and a half. Although this was mainly due to strong growth in the two years preceding it. Despite the recent downturn, the level of growth is still historically high.

Output growth may well suffer from the effects of geopolitical developments on world trade, such as increased import tariffs. A possible downturn of the German economy could also have an effect; a quarter of Dutch exports go to our eastern neighbour. If the German economy declines, this will eventually have an effect on companies in the Netherlands. In this respect, the increase in consumer spending is timely. Spending increases can boost domestic demand for products and thus support Dutch industry.

(Geo)political developments leave their mark

More geopolitical developments are leaving their mark on the economy. Consider the war in Ukraine and the conflict in the Middle East. In addition, Trump was inaugurated as president of the United States in January. He has already indicated that he will introduce import tariffs, as he did during his previous term. Although recent research^[1] has shown that increased import tariffs by the U.S. will have a limited direct impact on the Dutch economy, it is a negative development for world trade.

The impact will be mainly indirect. For example, Germany - the Netherlands' most important trading partner - will be hit hard by, among other things, hefty import tariffs on cars produced in that country. This is expected to worsen the performance of the German economy and possibly increase unemployment there. The result: a decline in consumption, and therefore less demand for Dutch products. American policy may also affect our economy through other countries. Moreover, it is likely that the EU and other countries will also impose import tariffs. Ultimately, this will all affect Dutch exports and activity.

On the political front, there are more unfavourable developments. The political preferences of EU residents have changed significantly in recent years, with conservative parties on the rise. This may ultimately affect Europe's sustainability ambitions. Moreover, Germany and France - the EU's two largest economies - have recently been without a government. This leads to political instability and uncertainty. Recently, the Netherlands also experienced a cabinet crisis, but a cabinet fall has been averted for now.

Dutch business climate worsens

Political instability and sometimes unpredictable government policies are having a negative impact on the investment climate in the Netherlands. Although we still score high, in recent years the Netherlands has fallen in several international rankings of competing countries. On WIPO's Global Innovation Index, for example: where we were ranked fifth in 2022, we now occupy eighth place. And on the IMD World Competitiveness Ranking, the Netherlands dropped from fifth to ninth place in one year.

The assessment of the business climate in the Netherlands has also deteriorated for the second year in a row - we barely obtain a pass^[2]. Factors contributing to this are in particular the tight labour market, increasing regulatory pressure and net congestion. It is leading to more and more companies to consider moving their operations and investments to other countries. Examples include Shell and Unilever, but more recently ASML and Boskalis also toyed with the idea of leaving. These developments may cause structural economic damage in the long term, and thus affect Dutch economic growth and prosperity.

Economic growth expected

Despite the aforementioned challenges - such as the increase in bankruptcies and the tightness of the labour market - CBRE expects the Dutch economy to continue to grow in the coming years. The economy is partly supported by falling policy interest rates. Average economic growth over the past year and forecasts for the current and next two years have improved slightly from a year ago - from 1.15% to 1.33%. This average is more or less in line with that of the eurozone, but a lot lower than that of the US.

Despite the upward economic trend, European productivity and innovation lag behind. As a result, competitiveness is at stake. On the positive side, EU countries are more aware of this since the publication of the Draghi report. The ECB is cutting policy rates faster than the Fed and BoE - something that may help EU competitiveness. Among other things, this development affects the currency ratio, making the euro worth less than the U.S. dollar and the British pound. As a result, Dutch products will become relatively cheaper, which may offset some of the aforementioned negative effects on exports. Moreover, this also provides short-term opportunities for the Dutch commercial real estate market.