OECD Economic Outlook, Volume 2018 Issue 1

Belgium

Economic growth is projected to continue at 1.7% in 2018 and 2019. Domestic demand will be an important driver of growth, thanks notably to further declines in unemployment. Growth in 2018 will be supported by strong government and private investment. Inflation will ease in 2018 as past pressures dissipate and electricity prices are reduced.

Public debt is projected to decline in 2018 and 2019, despite planned reductions in labour taxation. Re‑orientating public spending towards education and transport infrastructure investment to relieve bottlenecks, as well as strengthening competition in various professions and making it easier to start a business, would enhance productivity and inclusiveness. Raising skills and work opportunities for disadvantaged groups is also key to make growth more inclusive.

Growth has strengthened

Economic growth remains below that of the euro area. Despite high levels of consumer confidence, private consumption has eased somewhat, while government investment has increased. Employment growth has continued, supported by expanding output, labour tax cuts and past wage moderation. Wage growth has risen since 2017, notwithstanding recent reforms of the wage‑setting system designed to allow the framework to better take into account international cost competitiveness. Inflation has increased, partly driven by oil prices.

Medium-term growth needs to be raised

The budget deficit fell to 1% of GDP in 2017 and is projected to remain low in the coming two years. As public debt remains high over the projection period, it is important that the government adheres to its medium‑term fiscal targets to permit a steady reduction of the debt‑to‑GDP ratio. The authorities should increase public investment, which has been low for several decades, to boost productivity growth. Given the need for fiscal consolidation, these investments should be more than offset by reductions in inefficient public spending, user fees or through tapping private sources of finance.

Belgium

Source: OECD Economic Outlook 103 database.

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Productivity and external cost competitiveness would benefit from strengthened competition in professions that provide services to exporting industries and from simplified administrative procedures and requirements to start a business. Growth would be made more inclusive by further enhancing the labour market performance of immigrant, low‑skilled and older workers. Improving the capacity of the education system to provide disadvantaged students with necessary skills, on‑the‑job training and increased use of flexitime are particularly important. Recent pension and wage formation reforms are also likely to have improved labour market outcomes, but should be monitored. To make growth greener, transport infrastructure around major urban areas should be improved, congestion charges extended and the favourable tax treatment of company cars reduced.

Belgium. Demand, output and prices

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Growth is projected to remain relatively stable

GDP growth is projected to be 1.7% in 2018 and 2019. Inflation will ease due to a deceleration in oil price growth. Private consumption will be an important driver of growth, supported by past and further announced reductions in labour taxation. Government investment will contribute to economic activity in 2018 in the lead up to local elections. Private investment will be robust over the projection period and support growth. Export growth is projected to slow as export market growth declines, leading to a deterioration of the current account. Employment growth is projected to continue and lead to further declines in the unemployment rate, to 6.1% in 2019. Continued uncertainty associated with Brexit could dampen trade. On the upside, economic growth could be stronger if tax reductions enhance private consumption more than expected.