Netherlands Country Risk Report & Analysis

Return to positive but below-trend growth

AA1

LOW RISK for enterprise

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Updated in January 2025.

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Form of state	Constitutional Monarchy
Head of government	Dick Schoof
Next elections	2028, General

Strengths & Weaknesses

One of the most open economies in the world, benefiting from its strategic location
Labor market remains tight, with low unemployment rate and high vacancies
Open economy, characterized by high living standards
Well-developed infrastructure

Political fragmentation
Housing crisis to be tackled: still-high demand and limited supply
Very urgent green transition, especially independence from fossil fuels
Strong dependency on exports in a context of weak growth for trading partners

Economic Overview

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Activity to catch up further after stalling

Despite enjoying a faster post-Covid rebound than its Eurozone peers (+8.5% compared to end-2019, EZ average +4.6%), the Netherlands barely escaped a contraction in 2023 ( +0.1%). And though economic activity resumed in 2024, the drivers have been volatile. Private consumption started to recover after elevated uncertainty and surging prices eroded household and corporate consumption behavior. Yet, both consumer and business confidence remain weak and below their long-term averages, while net trade and investment have also been volatile.

Inflation pressures in the Netherlands decelerated strongly in 2023, after reaching one of the highest rates in the Eurozone in October 2022. Inflation rebounded to one of the highest rates in the Eurozone in 2024 (3.3% on average) due to strong base effects, playing especially on energy prices (gas, electricity and district heating). In 2025, we expect prices to ease and the CPI to reach 2.7%, followed by 2.1%. Together with a strong wage growth, this should provide some breathing room for private consumption, which will be gradually pick-up in 2025-26.

The Netherlands’ labor market remains very strong and tight. This means many companies are looking for workers while few people are looking for a job; vacancies are at record highs. There is a huge shortage of staff in various sectors such as ICT, construction, healthcare and education. The high inflation environment and labor market tightness have led to a sharp rise in wages. Also, the government has taken a step for the lowest income earners by increasing the minimum wage.

The new government’s first budget promised new spending while keeping the deficit below 3%. According to the Draft Budgetary Plan, the government deficit is seen at 2.5% of GDP in 2025 (from 1.8% in 2024). The priorities of the Dutch government focus on migration, the tight housing market and household incomes. Other key policy issues to be addressed include measures aimed at improving the quality and accessibility of healthcare and education, as well as tackling climate change, the energy supply and the tight labor market.

Fragile government to tackle multiple challenges

The Wilders’ Party for Freedom surprised by winning the November 2023 election, obtaining 37 seats (out of 150 seats). However, negotiations for cabinet formation collapsed throughout the process, finally resulting in the formation of the Schoof cabinet in July 2024, comprising the PVV, the People's Party for Freedom and Democracy (VVD), New Social Contract (NSC) and the Farmer–Citizen Movement (BBB). Political fragmentation means the government remains fragile and will face challenges in its term.

Migration and housing were the key themes of the electoral campaign and are key priorities of the new government. It has already announced the strictest asylum policy ever, with the aim of reducing or capping the number of migrants allowed in the country per year – including asylum seekers, labor migrants and students. Strictly connected to new arrivals, the structural lack of housing has also re-emerged as a hot topic, given the further push to demand.

In addition, the new government has scaled back climate ambitions; the 2030 target for the reduction of emissions has remained at 55% (compared to 1990 levels), although this no longer is a minimum reduction, and the extra buffer will be skipped. Notably, the Netherlands is an extensive agricultural exporter (second only to the US). This coupled with a dense population and heavy traffic leads to large nitrogen emissions.

Moreover, the Netherlands' growing reliance on liquefied natural gas (LNG) from the US has led to a sharp increase in the climate impact of its natural gas consumption. Although the US now supplies 27% of the gas used in the Netherlands, it is responsible for 66% of the total greenhouse gases emitted during gas extraction and transport.

The Netherlands is set to receive EUR5.4bn in grants (0.5% of GDP) from the NGEU funds. The Netherlands did not apply for EU loans as their 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.

Trade Structure by destination/origin

(% of total, 2023)

Trade Structure by product

(% of total, annual 2023)

Contact

Madalena Martini

Economist

maddalena.martini@allianz.com