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Inflation set to stay at 3%, trade war will hurt economic growth

December 13, 2024
Photo: Depositphotos.com

Inflation is set to remain high next year at around 3%, the Dutch central bank said on Friday in its autumn projections. Earlier the bank had estimated inflation would fall to around 2.8% next year.

“The European Central Bank’s inflation target is 2%, a level which benefits the economy,” said the bank’s monetary affairs chief Olaf Sleijpen. “While a 3% inflation rate is not inherently problematic for a short while, it is important that it does not become entrenched in the expectations of households and businesses.”

The bank said unions, employers and the government must work together to prevent 3% inflation from becoming normalised.

The bank said estimated economic growth, of 0.9% this year and 1.5% in 2025 and 2026, is slightly higher than forecast in the spring projections. Dutch exports are also expected to start contributing more to economic growth on the back of world growth, the bank said.

Nevertheless, geopolitical uncertainty is threatening this acceleration and the Netherlands, as a trading nation, is sensitive to developments abroad, such as unrest in the Middle East and the Russian war in Ukraine, the bank said.

“Added to this is the threat of a trade war fought with high reciprocal import tariffs. Uncertainty about this has risen sharply since Donald Trump was elected the new US president,” the statement continued.

Although just 6% of Dutch goods exports were destined for the United States in 2023, the Dutch economy could be significantly damaged by US protectionism, the bank said.

“Not only will exports to the United States grow less, but a trade war will also indirectly affect Dutch trade with other countries,” the bank said. In this alternative scenario, economic growth will decline sharply in 2025 and, more notably, in 2026, when just 0.4% of the projected growth of 1.5% will remain.

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