DNB Spring Projections June 2024

After stagnating in 2023, the Dutch economy achieves a soft landing and enters a moderate growth trajectory. These projections show increases in the growth of gross domestic product (GDP), from 0.2% in 2023 to 0.5% in 2024, followed by 1.3% in both 2025 and 2026. GDP growth in 2024 is domestically driven, with government spending being a major growth contributor. Household spending is also a key driver of growth, underpinned by higher employment, consumer confidence and real wage growth. Consumption is also being boosted by the resumption of house price growth from mid-2023. Corporate investment continues to contract in 2024, but increases again in 2025 and 2026. The same applies to exports, which also pick up in 2025 and 2026. GDP growth is therefore more broadly based, as government and consumer spending also grow steadily in the years ahead.

Unemployment is projected to rise slightly, from 3.6% in 2023 to 4.0% in 2026. Inflation (the European harmonised HICP figure) falls to 2.8% in 2024 and continues to decline steadily to just below 2% in 2026. Core inflation, which excludes energy and food, also falls. From 6.4% in 2023, it drops to 2.9% in 2024, 2.4% in 2025 and 2.0% in 2026. With the projected declines in both HICP and core inflation, price stability is in prospect at the end of the projection horizon. Negotiated wage growth in the private sector is expected to reach 6.0% in 2024 after 5.9% in 2023. In 2025, negotiated wage growth is set to decline gradually to an average of 3.7% and to fall further to 2.9% in 2026. Both inflation and wage growth decline more slowly than previously projected, which in itself is not surprising, but it does illustrate that the risks are mainly to the upside.

Average house prices are now above the previous peak of July 2022. The decline witnessed in 2022 and 2023 has therefore been reversed earlier than expected. House prices are projected to continue rising, partly due to improved borrowing capacity among first-time buyers. Onbalance, therefore, there is little change in affordability for first-time home buyers.

The government’s budget deficit is set to grow in the years ahead, putting it at risk of exceeding the European deficit ceiling. These projections do not take into account the outline agreement reached between the prospective coalition parties. The agreement was only announced a day before the deadline for completion of our final projections, which are part of the overall Eurosystem projections. Our additional analysis based on the outline agreement shows increases in the budget deficit in 2025 and 2026, followed by decreases in 2027 and 2028. Over the 2025-2028 period as a whole, the policies in the outline agreement have a limited upward impact on GDP growth (average of +0.1 percentage points per year). Our analysis of the economic impact of the agreement also shows little change in inflation (average of +0.2 percentage points per year) and unemployment (-0.2 percentage points in 2028).