How big is the risk of a recession in the Netherlands?

The Dutch economy grew by 0.4% in Q4 2024 compared to the previous quarter, according to data from Statistics Netherlands (CBS). However, since Donald Trump ignited a trade war, the question remains whether this economic growth will continue. We spoke with Thijs Knaap, Chief Economist at APG, to find out whether the Netherlands is at risk of a recession.

What factors could indicate a recession?
"Two institutions have the power to trigger a recession through their policies: the central bank and the government. However, inflation appears to be under control, and the European Central Bank (ECB) is gradually lowering interest rates, so that’s not a current concern. The Dutch government, as outlined in its coalition agreement, has decided to increase the budget deficit through measures such as purchasing power support and defense spending. The Netherlands Bureau for Economic Policy Analysis (CPB) has calculated that, based on these government plans, the economy will continue to grow this year and next.

Other potential causes of a recession include an economic shock or crisis, such as a wave of corporate bankruptcies. Over the past few years, we’ve seen two moments where a crisis nearly unfolded: in March 2023, following the collapse of Silicon Valley Bank, and in August 2024, during the stock market crash in Japan. These are classic shocks that—if the financial system were unstable—could have triggered a domino effect in global markets. Since both crises were ultimately contained, we can cautiously conclude that this risk remains relatively low for now."

That brings us to the elephant in the room—Trump’s unpredictability and the ever-present threat of an escalating trade war.
"Yes, this is the most likely economic shock we could face. U.S. import tariffs would impact Dutch companies as well. The key question is whether this impact would be severe enough to push the Netherlands into a recession. CPB and the Dutch Central Bank (DNB) don’t think so.

The most likely U.S. import tariff scenario is a 10% tariff on certain Dutch exports to the U.S. This would reduce trade, but the overall effect on economic growth is more nuanced because there are winners and losers. Companies that export to the U.S. would be negatively affected, but at the same time, some businesses could benefit by selling more in Europe, as American companies price themselves out of the market. Trade restrictions are never beneficial, but the resulting shift in trade flows alone won’t be enough to push the Netherlands into a recession."

Is that the whole story, or is there a hidden risk?
"What institutions like CPB and DNB don’t factor in—because it’s nearly impossible to quantify—is the impact on productivity and business confidence. When uncertainty rises, companies don’t know what to expect tomorrow. That is exactly the situation with Trump back in the White House.

One possible scenario is that businesses delay investments, economic activity stalls, financial markets plummet, and we end up with a negative growth shock after all. This is not an unlikely risk—in recent weeks, U.S. stock markets have dropped by around 10%, entirely due to Trump’s unpredictable trade policies.

In a still-globalized world, Europe is partly at the mercy of one man’s whims. The big question is whether Trump will adjust course in time. In the past, he paid attention to the Dow Jones index, but now, he seems less concerned about market reactions."

Can we put a percentage on the risk of a recession?
"Economists estimate that the probability of a recession in the eurozone over the next 12 months is 30%. That’s not particularly high—it represents a background risk that’s always present.

For the Netherlands specifically, no exact percentage is calculated, but in Germany, the risk of a recession is 50%, which is more concerning. There’s an old saying: “When Germany sneezes, the Netherlands catches a cold.” However, this connection has weakened in recent years. The Netherlands has diversified its economy, shifting focus away from Germany and toward exporting services globally.

This means the likelihood of the Netherlands being dragged into a German recession is lower. Additionally, Germany has just announced a highly expansionary fiscal policy, which significantly reduces its recession risk.

Looking at rising government spending across European countries and falling interest rates, we can conclude that a recession isn’t imminent. Instead, our economy is more likely to continue growing at a steady pace—as long as no major new shocks occur."