High inflation and resulting price increases have impacted Dutch consumers more than expected, suggests ING economists. Despite growth in the economy and purchasing power in the Netherlands, consumers have been spending less.
It was initially thought that consumer spending in the Netherlands would be an important driver for economic growth this year. "After all, purchasing power is rising considerably, particularly due to collective labour agreements wage increases have been far exceeding inflation for some time now,” said experts from the bank. “Consumer confidence was also higher in the second quarter than in the first."
However, this was not the case. According to ING, a possible reason that Dutch consumers spent less could be that they were expecting an increase in inflation. Consumers were most likely bracing themselves for rising costs when seeing visible elements of high inflation such as hikes in rental prices for Dutch housing and increases in the tobacco tax. Experts even believe that the bad weather - with 2024 having been the wettest first half of the year ever recorded - could have also influenced spending behaviour.
All this could have made consumers more pessimistic, leading them to expect higher price increases than what they actually experienced, which in turn resulted in less spending.
The Dutch economy grew by 1 percent in the second quarter of 2024 compared to Q1, and this trend is likely to continue. The Dutch Bureau for Economic Policy Analysis (CPB) predicted in an outlook for 2025 that the economy will continue to grow and purchasing power will increase.
With wage increases, tax breaks and stronger world trade, the Dutch economy is expected to grow by 0,6 percent this year and 1,6 percent in 2025. People living and working in the Netherlands will also see purchasing power rise back to levels reported in 2021. Purchasing power is expected to increase by an average of 2,5 percent in 2024 and by up to 1,1 percent next year.
On the other hand, a rising budget deficit will offset the good news of higher purchasing power and lower poverty levels. The expenditure of the Dutch government is rising faster than income, which is raising the deficit closer to the EU’s maximum of 3 percent of the GDP. “This means that there is a chance that in the event of future setbacks, sudden cutbacks will be necessary,” said the CPB.
Thumb image credit: Harry Beugelink / Shutterstock.com