29/06/2023 - After a robust post-pandemic recovery, high inflation, rising interest rates and weak external demand are weighing on the Dutch economy, underlining the need to address long-running structural challenges like low productivity growth and labour shortages.

The latest OECD Economic Survey of the Netherlands projects GDP growth to slow to 0.9% in 2023 from 4.5% in 2022 before picking up to 1.4% in 2024. Inflation, which has been amplified by energy price spikes in the wake of Russia’s war of aggression against Ukraine, is projected to come down gradually to average 3.2% in 2023 and 2.2% in 2024 as energy prices normalise.

To help bring inflation durably down to target, energy support should now be limited to households not sufficiently covered by the general social protection system. A long-term fiscal strategy should be put in place to ease spending pressures from population ageing and higher interest rates. It is also important to advance policies to improve work incentives, childcare affordability, migration schemes and adult education to lift labour supply in what is one of the tightest labour markets in the OECD in terms of the ratio of job openings to available workers.

Streamlining the currently complex tax system would enhance macro-financial stability. Tax-subsidised mortgages in the Netherlands are a key factor behind one of the highest average levels of household debt in the OECD as a proportion of net disposable income. Reducing tax distortions could help raise productivity growth by steering private investment towards more productive uses than today, where decisions often favour illiquid wealth accumulation.

“Sound economic management has helped the Dutch economy weather the COVID-19 and energy crises. Core inflation remains high though, and rising interest rates are now exposing macro-financial vulnerabilities,” OECD Secretary-General Mathias Cormann said, presenting the Survey in The Hague alongside Dutch Minister of Economic Affairs and Climate Policy Micky Adriaansens. “Labour market tightness in the Netherlands predates the pandemic. Skills and Labour shortages prevent businesses from operating at their desired production levels. Well designed policies are needed to integrate more women, migrant and low-skilled workers into the labour market, to expand adult learning, as well as to lower the effective rate of tax on moving from part-time to full-time employment.”

The Survey says that a further fall in house prices poses a potential risk to the outlook and banks should remain vigilant to the impacts of a cooling housing market. With a high level of mortgage debt and real incomes declining, the risk of possible defaults might increase. The requirement introduced by the Dutch Central Bank for banks to hold a certain minimum of capital for their mortgage portfolio is welcome.

Despite good digital infrastructure and a well-educated workforce, productivity growth has stalled over the last decade and lagged average OECD levels, held back in part by weak private investment – approximately 10% below the OECD average as a share of GDP. The Survey welcomes the increase in public investment over the last years, such as in highspeed broadband and the electric grid infrastructure, which can leverage private investment.

The Survey also calls for reforms to advance the green transition, which would reduce the country’s dependence on fossil fuels and its exposure to global energy price fluctuations. Despite some progress in reducing carbon emissions and expanding green energy sources, the Netherlands’ share of renewable energy remains low relative to other EU and OECD countries. More will need to be done for the Netherlands to meet its ambitious emissions-reduction targets and the Survey recommends expanding the current Climate Strategy beyond 2030 with concrete deadlines and priorities. Fostering the growth of sustainable technologies will require targeted support during early stages of development and investments in complementary green infrastructure.

See an Overview of the Survey with key findings and charts(this link can be included in media articles).

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