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BELGIUM

Economic growth challenged by some (old) fiscal challenges

AA1

LOW RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD 578.6bn (World ranking 25, World Bank 2022)
Population 11.7mn (World ranking 80, World Bank 2022)
Form of state Constitutional parliamentary monarchy
Head of government Alexander De Croo (PM, outgoing)
Next elections 2029, legislative
Updated in July 2024.

Strengths & Weaknesses

Strengths
  • Resilient economy through pandemic and energy crisis
  • Solid labor market and job creation
  • Private consumption remained supported by government measures and protected wages
  • Financial sector proves resilient, banking sector improved profitability and capital position
  • Strategically located at the heart of Europe, home of international institutions and workers
Weaknesses
  • High public debt ratio, no significant consolidation efforts after massive support during crises
  • Manufacturing sector suffering after strong performance in 2021-22 (linked to pharma)
  • Automatic wage indexation can pose fears of wage-price spiral and hamper competitiveness
  • Export-oriented country which is suffering in a weak demand environment
  • Political fragmentation persists

Economic Overview

Soft but constant growth in 2024-2025

Belgium’s economic activity expanded at a quite constant (modest) pace since the second half of 2022, after having recovered strongly from the pandemic in 2021 and early 2022 (it plunged -5.7% in 2020). Overall, GDP expanded by +1.4% in 2023 and has remained in line with the Eurozone average so far in 2024, helped by private consumption. In particular, household spending has remained solid, thanks both to government support during the energy crisis and to the wage-indexation which protected consumers’ purchasing power. Housing investment has been declining since the beginning of 2022, but further monetary easing should provide some support to real estate activity.

The disinflation trend has reverted recently, with inflation touching its highest level in 10 months in June 2024. This is primarily due to the end of the “Basic Energy Package”, which reduced households’ electricity and natural gas bills and we expect this to have an increasing effect on inflation until February 2025. Core inflation remains well above the ECB’s target of 2%: it increased to 3% in June from 2.8% in May.
Given that Belgium is one of the few Eurozone countries to have an automatic wage-indexation system for most incomes, wage growth began much earlier than in other Eurozone countries and started to drop in the beginning of 2024. Also, increasing savings rates and intentions should provide some support to ease the pace of wage growth.

Looking ahead, stabilizing inflation and recovering consumer confidence should provide some support to private consumption and household investment, which we expect to pick up in the second half 2024. Therefore, we expect activity to gradually recover and forecast GDP to expand by +1.2% in 2024-2025.

The labor market remains very tight, with the unemployment rate low and expected to stay around the current rate of 5.6%. Belgium’s vacancies rate remains one of the highest in Europe (5.1% at the end of Q1 2024).

Fiscal woes remain on the agenda while manufacturing activity exits recession

The pandemic and energy crisis increased already-high public debt and structural fiscal deficits. Belgium’s public finances remain a hurdle for the medium-run outlook. The public deficit is expected to remain around 4.5% of GDP in the forecast horizon and public debt at around 106% of GDP in 2024-25. The increase in non-temporary current expenditure over 2022-2023 was driven by the automatic indexation of public sector wages and social benefits, but also by rising ageing costs and permanent measures taken by the government during the pandemic (i.e. increase in the minimum pension and health care sector wages). As a consequence, the European Commission has recently initiated an Excessive Deficit Procedure against Belgium within the new revised fiscal framework.

The manufacturing sector has started to gradually recover from the setback experienced in 2022 and 2023. Belgium has many energy-intensive companies that suffered from higher energy prices and labor shortages. Also, the pharmaceuticals sector – which accounts for more than 20% of total production – has been normalizing after the artificially inflated growth seen in 2021 due to the massive production of Covid-19 vaccines. But output also fell sharply in several other industrial sectors. Looking ahead, we expect the manufacturing outlook to gradually improve as demand improves and costs decline further.

The NGEU funds could provide some cushion to the outlook in the coming quarters, but Belgium has only received the payment related to “pre-financing”. The 40 related reforms are intended to address bottlenecks to lasting and sustainable growth, while the 119 identified investments are targeted to accelerate the transition towards a more sustainable, low-carbon and climate-resilient economy to maximize the benefits of the digital transformation and ensure social cohesion. The plan also intends to improve connectivity within the country, boost labor market performance and innovation and make public spending more efficient and sustainable. Allocated funds amount to EUR5.9bn in grants.

Belgium has become used to lengthy coalition negotiations, but this time could be different

Belgium remains an extremely attractive place to invest; it ranks 21st among the most competitive nations in the world, according to the International Institute for Management Development classification. The country is strategically situated in Europe and is home to many EU institutions, NATO and numerous multinational company headquarters. It also has international rail, air and shipping infrastructure that make it one of the best locations for industry and logistics.

On the political side, Prime Minister De Croo announced his resignation after his party’s (the Flemish liberal Open VLD) defeat in European elections as the anti-immigrant and separatist Vlaams Belang party gained ground. However, more extreme parties did not win as much as was feared and expected. Since then, five Belgian political parties have agreed to start formal coalition talks led by Bart De Wever, the president of the Flemish-nationalist party New Flemish Alliance (N-VA), which obtained the most votes after the election in June.

Trade structure by destination/origin

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Trade structure by product

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Collection Complexity

The Allianz Trade Collection Complexity Score provides a simple assessment of how easy it is to collect debt around the world. The 2022 edition covers 49 countries that represent nearly 90% of global GDP and 85% of global trade.
Discover all our Collection Complexity reports

Trade structure by destination/origin

(% of total, annual 2022)

Exports Rank Imports

Trade structure by product

(% of total, annual 2022)

Exports Rank Imports

Collection Complexity

The Allianz Trade Collection Complexity Score provides a simple assessment of how easy it is to collect debt around the world. The 2022 edition covers 49 countries that represent nearly 90% of global GDP and 85% of global trade.
Discover all our Collection Complexity reports

Contacts

manfred
Maddalena Martini
Economist
maddalena.martini@allianz.com

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