Main risks to Dutch economy include Iran war, cyber threats, odd AI investment schemes

Escalating conflict in the Middle East is adding further strain to financial stability in the Netherlands. In reports released on Tuesday, the Authority for Financial Markets (AFM) and the Netherlands Bureau for Economic Policy Analysis (CPB) both highlighted growing risks, while the Dutch central bank (DNB) warned of additional threats stemming from ongoing geopolitical and economic instability alongside the rapid development of artificial intelligence, which could lead to more cyber attacks.

“Uncertainty has become the new normal,” said Laura van Geest, chair of the AFM. The Authority for Financial Markets says that higher costs and weakening purchasing power are now directly impacting both households and businesses. It also observes greater volatility in financial markets, with sharper fluctuations in asset prices.

“We are still operating under code orange,” said Dutch central bank president Olaf Sleijpen, referring to heightened financial risks. He cautioned that the likelihood of a market correction has increased.

According to him, recent gains in stock markets are partly driven by investors betting on a quick end to the conflict involving Iran. Still, he warned that financial markets may yet need to adjust their assumptions about inflation and economic growth.

Sleijpen also noted that the current stock market rally is largely being propelled by a small group of major AI and tech firms. “Investors are not very concerned about the substantial investments required for AI development. But with new technology, profits are uncertain and depend on how quickly it is adopted.”

The AFM, DNB, and CPB are publishing their risk assessments ahead of a parliamentary briefing in the Tweede Kamer, the lower house of Dutch parliament, next week. In their reports, they also warn that the expansion of financial activity beyond traditional regulatory oversight is making it harder to monitor certain risks.

The risk of cyberattacks in the Netherlands has increased due to new forms of artificial intelligence. AI-driven cyberattacks could potentially disrupt payment systems if banks and other institutions do not quickly improve their digital security, the DNB warns.

Sleijpen described new AI systems like Mythos as a “game-changer.” He said they are capable of operating so quickly and intelligently that they can independently launch attacks after identifying security vulnerabilities in just a matter of minutes. In his view, relying on conventional patching methods would simply come too late to stop them.

Sleijpen said cyberattacks are becoming more closely tied to geopolitical tensions. He also pointed to a connection with the risk of corrections in financial markets. It is precisely during periods of market turmoil that digital attacks on the financial sector can further undermine confidence.”

Sleijpen has the impression that the financial sector is already doing a great deal on cybersecurity. “It is number one on everyone’s agenda,” he noted. “But more is needed; that is also the conclusion.”

Banks, for example, will also have to use AI for their own security and invest more in IT. “That costs money, but fortunately, the good news is that banks are all reporting strong profits.” They should therefore be able to absorb these costs.

For policymakers, the DNB chief also sees an important role. “Given the cross-border nature of AI development, international cooperation and knowledge sharing are essential. This requires a coordinated European approach.” He also said it is important to identify and address vulnerabilities in other critical infrastructure, such as energy and telecom.