Economic growth is projected to remain modest, slowing to 1% in 2026 before strengthening to 1.4% in 2027. In 2026, spillovers from the evolving conflict in the Middle East will weigh on activity through weaker private consumption, driven by higher energy costs, and weak external demand, reflecting the Netherlands’ exposure to global trade developments. As inflation eases and wage growth remains firm, consumption should gradually recover in 2027, with government investment further supporting the pickup. Inflation is expected to increase temporarily to 2.7% in 2026, before easing to 2.1% in 2027. However, inflation might prove more persistent, as second‑round wage effects, amplified by an already tight labour market, could keep core inflation elevated for longer despite moderating headline pressures.

Despite higher defence spending, fiscal policy remains appropriately mildly supportive, reflecting offsetting measures to raise labour‑tax revenues and slow the growth of healthcare and social‑security spending. Allowing automatic stabilisers to operate fully amid elevated energy prices helps cushion the impact of the shock on incomes and demand while preserving incentives for green investments and adjustments. Prioritising productivity‑enhancing investment, including in digital skills and digital adoption, and easing electricity‑grid bottlenecks that hold back private investment, would support medium-term growth. 

Modest GDP per capita growth over the past decade has been largely driven by increasing labour participation, but productivity per hour worked has lagged peer countries. Business investment has been subdued, slowing capital deepening, while total factor productivity growth has remained low. The Netherlands’ long-term prosperity is held back by labour shortages, weak investment, and sluggish productivity growth.

Increasing labour supply while also strengthening productivity growth is essential. Labour participation is high, but average hours worked are low compared to peer OECD countries, especially for second earners. Addressing persistent skill shortages through a stronger culture of lifelong learning could help boost human capital. Streamlining the complex tax system and reducing its distortive incentives could support productivity growth.