The Dutch economy is set for moderate growth of 1.9% this year and 1.5% in 2026, although geopolitical unrest is creating uncertainty, the government’s macroeconomic think tank CPB said in its latest forecast.

“Since the inauguration of the new US administration, political decisions are becoming less predictable, and possible disruptions in trade and international cooperation may occur,” the agency said.

The agency, whose projections will play a key role in the government’s spring financial discussions, expects spending power to grow this year and next, and poverty to decline.

• Coalition divided on spending as spring budget talks begin

Spending power, set to increase a marginal 0.6% this year and 1.1% in 2026, has a key role in the talks. Three of the four coalition parties are asking the cabinet to boost consumer spending in the face of higher inflation, energy bills and housing costs.

The CPB also said the medium-term economic outlook is more favourable than previously expected due to a higher labor force participation rate and lower unemployment.

“The government deficit is set to rise less than previously projected,” said director Pieter Hasekamp. “At the same time, there is great geopolitical uncertainty, and it would be wise to leave sufficient headroom to absorb future setbacks, in line with the budget rules in the outline coalition agreement.”

Ministers are preparing for six weeks of tough negotiations ahead of this year’s spring budget statement, as the four coalition parties pursue different spending priorities.

Finance minister Eelco Heinen has already warned that there is little room to loosen the purse strings, even after the budget deficit for 2024 came in much lower than forecast. The CPB puts this year’s deficit at 1.8%, rising to 2.4% in 2026.

Heinen has said he wanted to reduce the national debt to create a buffer against future downturns, warning: “today’s positives are tomorrow’s negatives.”

The figures mean the Netherlands is not in danger of breaching the EU’s 3% budget deficit threshold any time soon, which would trigger further spending cuts under the coalition agreement.

But Heinen must deal with a flurry of wish lists from ministers representing four parties with increasingly different visions of how to spend it, while having to plug several holes in the public accounts.