Middle East conflict slows Dutch growth, fuels inflation
The war in the Middle East is impacting the Dutch economy, leading to slower growth and higher inflation. The Dutch central bank (DNB) reports that energy prices have significantly increased due to the conflict.
Oil price surge dampens Dutch outlook
The war in the Middle East is significantly impacting the Dutch economy, primarily through a sharp rise in energy prices.
The closure of the Strait of Hormuz and damage to regional energy production facilities have caused oil prices to surge by approximately 90 percent in a few months.
This oil price shock is projected to have an upward effect on inflation and a downward effect on GDP growth.
The Dutch central bank (DNB) forecasts economic growth for 2026 at 0.8 percent, a full percentage point lower than the 2025 growth and 0.4 percentage points below the December 2025 forecast.
Despite the current energy price increase, inflation in 2026 is expected to be 2.7 percent.
This figure is lower than in 2022, primarily due to a less overheated economy and more moderate gas price increases compared to that period.
The DNB notes that the economic consequences of the oil price surge are smaller than in the 1970s, as the Dutch economy has become less dependent on oil as an energy source.
Market expectations suggest energy prices will remain elevated, only returning to early 2026 levels by mid-2027.
Trade and investment falter
Geopolitical tensions are curbing world trade growth, reducing Dutch export growth.
Domestically produced goods are losing market share due to relatively high wage and energy costs, though global demand for AI-related products offers some offset.
Business investments and private consumption are under pressure.
Companies are hesitant to invest due to uncertainty, increased energy costs, and rising interest rates.
Consumer pessimism, driven by the Middle East conflict and energy prices, leads households to save a larger portion of their income as a precaution, causing consumption to stagnate this year.
The DNB notes that the government is the main driver of 2026 GDP growth through increasing public spending, particularly in healthcare and defense.
This partly offsets slower employment growth in the private sector, leading to a gradual rise in unemployment and a less tight labor market.
Economic growth is projected to pick up in 2027 and 2028, reaching 1.2 percent and 1.3 percent respectively, with inflation remaining above 2 percent.
Vulnerability in a volatile world
The DNB's forecast highlights the Netherlands' acute vulnerability to global energy shocks and geopolitical instability.
While the economy shows some resilience, the call for reduced fossil fuel dependency and prudent fiscal policy underscores systemic weaknesses.
This report serves as a stark reminder that domestic economic health is increasingly intertwined with international security.