Our GDP growth is exceeding expectations

Our economy grew by 0,5% in the fourth quarter compared to the third. For the year as a whole, preliminary figures show growth of 1,9%. In 2024, it was 1,1%. This 1,9% is excellent and is likely even slightly higher than our economy's long-term potential. In December, the Dutch Central Bank (DNB) estimated growth at 1,7%. It is also clearly better than our neighboring countries. In Germany, growth last year was 0,3%, in Italy 0,6%, in France 0,8%, and in Belgium 1,0%. Spain, at 2,7%, grew significantly faster than ours.

Against all expectations, foreign trade contributed most to growth. In the fourth quarter, exports of petroleum products, machinery, and transport equipment were the main drivers. Judging by the explosive growth in ASML's order book, the growth in machinery exports could well continue strongly.

Government consumption also contributed significantly to growth in the fourth quarter. While you'd naturally prefer growth to come from the market sector, part of the increased government consumption is due to higher healthcare spending, which is largely demand-driven. Business investment should also be considered critically. It declined in volume in the fourth quarter, albeit slightly: -0,1% quarter-on-quarter. In 2025 as a whole, business investment rose a modest 0,5%. That could have been somewhat higher, although I realize this is a rather heterogeneous spending category. Private consumption grew by 0,3% in the fourth quarter and by 1,4% for the year as a whole. This was slightly disappointing, as purchasing power increased somewhat more overall.

The picture of the European economy is not entirely clear, but it does seem that economic growth will gain momentum in the coming period. This is evident from leading indicators. Take, for example, the "economic sentiment" index compiled by the European Commission. This index rose from 97,2 in December to 99,4 in January, reaching its highest level since January 2023. The improvement was broadly based.

The German Ifo index, on the other hand, marked time. Entrepreneurs surveyed for this index were slightly less negative about the current state of affairs, but somewhat less positive about the future.

The business confidence index for Dutch industry, as compiled by Statistics Netherlands (CBS), actually made a nice jump in January: from -1,1 in December to +0,8. This January reading was the highest since March 2023.

The US economy is also performing slightly better than previously expected. In my view, Trump is strongly committed to strengthening the US economy's earning capacity. This requires investment. It seems things are moving in the right direction in that regard. Orders for durable goods, excluding defense and aircraft, have increased nicely in recent months. In November, they were 5,3% higher than a year earlier. These are nominal figures, however; inflation still needs to be factored in. Growth is gradually picking up. In the five months ending in November, growth was well above 7% year-on-year.

US labor productivity is also doing well. While one should always be cautious about interpreting these figures in the short term, the improvement in productivity appears to be gaining momentum. In the third quarter of 2025, labor productivity in the manufacturing sector was 2,4% higher than a year earlier, the best figure since 2021, when the figures were flattered by the recovery from the coronavirus crisis. Such strong growth is excellent news, including for the president. High productivity growth puts downward pressure on inflation, increasing the likelihood of interest rate cuts by the Fed. High productivity growth is also beneficial for corporate earnings growth. This supports stock prices, and when they rise, US consumer confidence usually increases, as does spending power.

The Fed left the official interest rate unchanged this week after deciding to cut it by 0,25% in each of the previous three interest rate meetings. The Fed has become more positive about economic growth. While the labor market has consistently been said to be weakening in recent months, the Fed now reports that it is stabilizing. This eliminates one reason for lowering the interest rate. The Fed also notes that inflation is still slightly above its target, which also hinders a further rate cut. I suspect that inflation will decline later in the year, and that the Fed will then lower the interest rate.

Powell's press conference was unusual. He was asked quite a few questions unrelated to the interest rate decision. He mostly ignored politically tinged questions. Powell also didn't answer a question about the dollar's weakness, instead referring to the division of labor between the Treasury Department and the Fed. Policy on the dollar rate comes from the Treasury Department, not the Fed.

I found Powell's barely veiled criticism of the Trump administration's fiscal policy striking. According to Powell, the government debt isn't unsustainably high, but the increase in debt is, and the current fiscal policy isn't helping to address that problem.

I also found Powell's answer remarkable when asked if he wanted to convey any specific messages to his successor. There were three. First, don't get sucked into political discussions. Second, invest time in maintaining good relationships with members of Congress. And third, the people who work for the Fed are exceptional, so good. You won't find better. In my experience, central banks, not just the Fed, always manage to attract very good people. I've never met an economist working at a central bank who made me think, "He's not very bright either." Yet, I believe the self-criticism among central bankers is disappointingly weak, and they're just a little too adept at patting themselves and each other on the back. But I do find it quite fitting that Powell, nearing his impending retirement, is highlighting his own people. That's how it should be.

At the time of writing, it is not yet known who will succeed Powell as Fed chairman. Kevin Warsh appears to be the most likely candidate. In 2006, Warsh was appointed by Bush Jr. as the youngest-ever Fed chairman. He would remain in office until 2011 and thus experienced the entire financial crisis as a Fed chairman. Warsh has always been known as a moderate hawk and a fervent advocate for central bank independence. So what does Trump see in Warsh?

I think three things. First, Warsh has criticized the Fed because he believes monetary and fiscal policy should be better coordinated. From that perspective, it might just be one more step toward an interest rate policy that explicitly takes the government's interest burden into account.

Secondly, Warsh seems to strongly believe in the inflation-reducing effect of AI. Therefore, he would be more inclined to implement interest rate cuts when inflation is still a bit too high, assuming things will turn out well.

Third, Trump must get his nominee through the Senate. Someone who is clearly Trump's lapdog could face a tough time in the Senate. Thom Tillis, a Republican senator from North Carolina, has already indicated he will vote against any candidate Trump nominates as long as the lawsuits against the Fed and its board members continue. Senator Lisa Murkowski of Alaska is somewhat less explicit, but she's leaning towards that as well. Republicans hold 53 of the 100 Senate seats, so that could be a close call.

It's sad, by the way, that a nomination for Fed director, and in this case, chairman, is so politically charged. All Democratic senators will vote against it, likely regardless of Trump's candidate. In 2018, Trump nominated Powell, and he received support from 84 senators, while 13 voted against. Under Joe Biden, Powell was reappointed in 2022 by a vote of 80 to 19. Ben Bernanke received the support of 70 senators at the time, and even the more controversial Jan Yellen, with 56 votes, likely received more support than Warsh will. We'll see.

Closing
The Dutch economy will have grown above expectations by 2025, even faster than many neighboring countries. The outlook is quite favorable now that the European economy appears to be recovering.

The US economy is also doing quite well. Business investment is picking up, and labor productivity growth is a particularly positive development.

The Fed noted this week that economic growth is better than expected, that the labor market is no longer weakening, and that inflation is still too high. Therefore, the interest rate remained unchanged this week.

Former Fed director Kevin Warsh seems the most likely candidate to succeed Powell as Fed chair. What I haven't mentioned above is that he's married to an Estee Lauder heir. Marrying into a billionaire family isn't everyone's cup of tea...

Hans de Jong

Han de Jong is a former chief economist at ABN Amro and now a resident economist at BNR Nieuwsradio, among others. His comments can also be found on Crystalcleareconomics.nl

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