OECD Economic Outlook, Volume 2024 Issue 1

Belgium

Real GDP is projected to grow by 1.3% in 2024 and 1.4% in 2025. Subdued global trade in 2024 and high interest rates are expected to weigh on investment and net exports. The effect of the automatic indexation of incomes on household consumption will begin to dissipate and employment growth will slow. Investment should recover in 2025 as external demand strengthens and inflation and financing conditions ease, spurring domestic activity. Headline inflation is projected to rise to 3.6% in 2024, before dropping to 1.9% in 2025 as economic slack reduces underlying pressures.

The fiscal deficit is expected to widen in 2024, but mild consolidation is expected in 2025, as the new government tackles the high debt burden and new EU fiscal rules come into effect. A coordinated, medium-term consolidation plan across all federated entities is needed to ensure public finance sustainability. Shifting taxation away from labour towards capital and encouraging greater participation of older workers in lifelong learning would enhance labour supply.

Economic growth has slowed

GDP growth slowed in 2023 with fourth quarter growth at 0.4%. The automatic indexation of wages and transfers, alongside a robust labour market, has preserved household purchasing power. However, employment growth has slowed, and high borrowing costs and weak confidence are damping domestic activity. Housing investment fell by 2.7% in the fourth quarter of 2023 and industrial production fell in February for the 15th consecutive month. Industrial capacity utilisation is low and export orders are trending down. Consumer confidence is weakening, although it remains slightly above the long-term average. Annual headline inflation has fallen to 3.8% in March, mainly due to lower energy prices, but remains above late-2023 levels. Core inflation remains high, at 3.9% in March, but has continuously declined since March 2023, as raw material prices subside and second-round effects from wage indexation diminish.

Belgium: Banking and labour market indicators

1. The credit data cover securitised or otherwise transferred loans in nominal terms (EUR, millions).

Source: OECD Economic Outlook 115 database; and National Bank of Belgium.

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Belgium: Demand, output and prices

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Weak global trade led to a fall in exports of 3.3% in 2023, amplified by the deterioration in Belgium’s competitive position. Unit labour costs have increased significantly due to the automatic indexation of wages. Retail energy prices have fallen substantially, but electricity transmission tariffs are set to rise on average by 77% over 2024-27, which will impact households. Food prices are also rising faster than in European neighbours, adding persistence to headline inflation.

Fiscal consolidation will commence in 2025

The fiscal deficit increased in 2023 and will widen again in 2024 under current policies. The debt ratio is on a rising path, and financing conditions will remain tight, although sovereign bond spreads have so far remained relatively stable. Belgium’s federal and regional governments have recently made efforts to lengthen the maturity of their public debt. Upcoming elections in June and subsequent coalition negotiations make near-term consolidation unlikely. However, the fiscal stance should turn contractionary from 2025, as the new EU fiscal rules take effect.

Economic activity will remain resilient

Real GDP is projected to grow by 1.3% in 2024 and 1.4% in 2025. Household consumption will provide support in early 2024 but is expected to slow, as the effect of automatic wage indexation fades and employment growth moderates. Weak global trade and reduced cost competitiveness will continue to bear down on exports, while tight financial conditions will hold back business and housing investment. As inflation and financial conditions ease, domestic activity and investment should recover in 2025. Exports will also pick up, as external demand improves and labour cost growth moderates. Headline inflation is projected to rise to 3.6% in 2024 on the back of rising energy prices, before falling to 1.9% in 2025 due to wage moderation and remaining economic slack. Key risks to the outlook include a further loss of price competitiveness due to persistent inflation and subsequent wage growth.

Putting debt on a sustainable track

The energy crisis has left Belgium with one of the largest debt-to-GDP ratios in the European Union. Most of this debt is concentrated at the federal level, but an increasing contribution is from the regions and communities. Renewed effort towards more coordinated medium-term consolidation is needed, as age‑related costs and the climate transition pose significant spending pressures across all federated entities. Belgium needs to commit to a multi-year downward trajectory for its public debt and deficit as part of new EU fiscal rules. Increasing the use of comprehensive spending reviews would help achieve budgetary savings, which is also needed to create space for public investment in the climate transition. Shifting taxation away from labour towards capital would reduce disincentives to work and help to broaden the tax base. Raising the low participation of older workers in lifelong learning could reduce early labour market exit and enhance productivity.