De Nederlandsche Bank research finds uncertainty shocks quickly depress Dutch activity and highlights bank capital as a recession buffer

De Nederlandsche Bank published two analyses on how exceptionally elevated global uncertainty, largely linked to unpredictable US trade policies and rising geopolitical tensions, can affect the Netherlands. The research estimates that uncertainty shocks quickly weaken sentiment and real-economy indicators and links elevated uncertainty to higher financial-market correction risk, while pointing to strong bank capitalisation as a key mitigant. Using a composite global uncertainty measure and a Netherlands-specific news-based index (drawing on Het Financieele Dagblad), the analysis finds that within a few months of an uncertainty shock economic sentiment falls by 2.3% and industrial confidence by 1.6%, alongside a 0.4% decline in investment and a 0.6% reduction in industrial production. A separate strand focusing on climate policy uncertainty finds similar but smaller economic effects. On financial stability, elevated uncertainty is associated with a higher probability of corrections in equity prices, corporate bonds and bank bonds, which can raise risk premia, tighten financial conditions and reduce credit availability. DNB’s calculations suggest that a 1 standard deviation (0.7 percentage points) increase in banks’ capital ratios supports economic growth during recessions by more than 0.3 percentage points, compared with less than 0.1 percentage points in normal times, reinforcing the case for maintaining capital requirements when uncertainty is high. DNB indicated it will discuss international cooperation, a strong Europe and the role of multilateral forums in boosting resilience in its Financial Stability Report, due on 20 May.