Dutch economy faces trade tensions, elevated inflation: IMF

The Dutch economy is currently grappling with multiple challenges, including rising trade tensions and domestic policy uncertainty, according to the International Monetary Fund's (IMF) Article IV consultation.

The economy is operating at full capacity, with inflation remaining elevated and critical bottlenecks in various sectors. Domestic demand is projected to drive growth, even as trade tensions affect momentum, with growth expected to reach 1.1 and 1.2 per cent in 2025 and 2026.

While the IMF expects domestic demand to support growth, downside risks dominate, primarily due to escalating trade tensions and ongoing domestic policy uncertainty. The IMF's assessment stressed the need for urgent structural reforms, including a pivot in fiscal policy from stimulating demand to expanding supply.

Directors concurred that fiscal policy should pivot from stimulating demand to increasing supply, given that real household incomes now exceed pre-pandemic levels, and the economy is operating at capacity amid elevated inflation.

Productivity-boosting measures such as enhancing business dynamism, encouraging productivity-enhancing investment through improved access to finance for SMEs, and promoting productivity spillovers were also highlighted as essential for long-term growth. Furthermore, the IMF emphasised the importance of effectively managing the green and demographic transitions to ensure long-term growth and sustainability.

The IMF stressed that while the Netherlands has demonstrated resilience in the face of recent shocks, tackling these structural issues will be crucial for maintaining its economic stability and competitiveness.

ALCHEMPro News Desk (HU)