Dutch Economy Faces Headwinds: Inflation Rises as War in Iran and Trade Tensions Mount

The Dutch economy is bracing for increased inflation and slower growth amid escalating geopolitical tensions in the Middle East and rising global trade barriers. De Nederlandsche Bank (DNB), the Dutch central bank, has warned of potential economic fallout from the ongoing conflict in Iran and the imposition of US trade tariffs, while also acknowledging the lingering effects of the energy crisis sparked by the war in Ukraine.

DNB Warns of Inflationary Pressures

According to a recent forecast by DNB, the war in Iran and the resulting disruptions to energy markets could significantly drive up inflation in the Netherlands. While the current situation is not expected to reach the severity of the 2022 energy crisis following Russia’s invasion of Ukraine, the potential for higher energy prices remains a significant concern. During the 2022 crisis, gas prices surged to over €300 per megawatt-hour; currently, prices are rising to around €50-€60, but further escalation could quickly change this outlook. Nltimes.nl

A severe scenario, involving a prolonged conflict and sustained high energy prices, could reduce household disposable income by as much as 6 percentage points. Lower-income households, who allocate a larger portion of their income to fixed costs like energy, would be disproportionately affected. Increased costs for other goods and services are also anticipated, potentially dampening consumer spending.

Code Orange for the Dutch Economy

DNB has declared a “code orange” for the Dutch economy, signaling a heightened level of uncertainty. This assessment stems from the confluence of the Iran war, rising energy prices, and the implementation of US trade tariffs. DutchBrief.com The central bank emphasizes the need for a coordinated European response to these challenges, rather than relying solely on national-level solutions.

This situation marks the third major global disruption in recent years, following the COVID-19 pandemic and the 2022 energy crisis. DNB identifies two urgent challenges: the threat of a global trade war and the increasing pressure on European nations to boost defense spending.

Government Cautious on Energy Compensation

Despite calls for government intervention to shield households from rising energy costs, DNB President Olaf Sleijpen has indicated that it is “wise” for the Cabinet to delay immediate decisions on potential compensation measures. Nltimes.nl While acknowledging the understandable desire for support, Sleijpen suggests a wait-and-see approach to assess the full impact of the situation.

Economic Growth to Gradual

The Dutch economy experienced growth of 1.7 percent in 2025, exceeding expectations. This was driven by increased household spending due to higher wages and increased government expenditure. World trade remained relatively stable despite the US trade tariffs, as companies accelerated international trade in anticipation of their implementation. DutchBrief.com

However, DNB projects a slowdown in growth to around 1.2 percent in 2026, and 1.1 percent in 2027. Inflation is expected to decline from 3.0 percent in 2025 to 2.4 percent in 2026 and 2.3 percent in 2027, but will likely remain above the European average due to domestic demand exceeding production capacity.

Budget Deficit Concerns

The government budget deficit is currently close to the EU’s 3 percent norm, at 2 percent in 2026. DutchBrief.com