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Economy and Finance

Economic forecast for Belgium

Economic growth in Belgium is expected to reach 2.8% in 2022, 0.2% in 2023 and 1.5% in 2024. Following the strong increases in energy prices, high inflation, which is forecast to reach 10.4% in 2022, 6.2% in 2023 and 3.3% in 2024, is projected to temper the growth of private consumption. The government deficit is projected at 5.2% of GDP in 2022, reflecting the budgetary response to high energy prices. In 2023, the worsening of macroeconomic conditions is projected to widen the budget deficit to 5.8%

Last update (forecast)

Indicators2021202220232024
GDP growth (%, yoy)6,12,80,21,5
Inflation (%, yoy)3,210,46,23,3
Unemployment (%)6,35,86,46,3
General government balance (% of GDP)-5,6-5,2-5,8-5,1
Gross public debt (% of GDP)109,2106,2107,9108,6
Current account balance (% of GDP)0,4-2,7-2,9-2,6

After a strong start to 2022, activity weakens

Economic growth is set to reach 2.8% in 2022, as the easing of COVID-19 related restrictions allowed for further expansion of activity in the first half of the year. 
  
High inflation and the decrease in consumer confidence are projected to curb the expansion of household consumption in the second part of the year. Quarterly GDP growth is estimated at -0.1% in 2022-Q3 and is expected to contract further in 2022-Q4. However, further automatic indexations of wages and social benefits are set to support the purchasing power of households moving forward. As indexation kicks in with a lag, this effect is expected to gain strength in 2023 and accelerate in 2024, when inflation is forecast to substantially slow down.

Uncertainty, higher cost pressures from input prices and wages are also expected to weigh on business investment. At the same time, the RRF is forecast to support gross fixed capital formation, in a context of increased needs for the energy transition. Consequently, after a contraction in 2022, investment is projected to recover slowly in 2023 before rebounding more dynamically in 2024.
 
After a strong performance of net exports in 2021, a less favourable external environment is set to weigh on exports in 2022 and 2023. The contribution of net exports to GDP growth is projected to be negative over the forecast horizon. All in all, real GDP growth is expected to slow down to 0.2% in 2023 and rebound to 1.5% in 2024.

Slow-down in the labour market

The good performance of employment in 2021 put the Belgian labour market on a strong footing for 2022. However, rising uncertainty and the downturn in economic activity is projected to moderate the performance of the labour market in the second part of 2022 and in 2023. Employment growth is forecast to reach 1.8% in 2022 and 0.3% in 2023, before regaining some strength in 2024, consistent with economic growth. The unemployment rate is expected to increase from 5.8% in 2022 to 6.4% in 2023 before a small decline to 6.3% in 2024.

Inflation on the rise

Headline inflation is forecast to reach an exceptionally high level of 10.4% in 2022. The sharp increases of wholesale gas and electricity prices have transmitted quickly to retail prices, which are expected to remain high next year. The pass-through of increased costs to core inflation components, including via higher wages, is projected to keep inflation elevated over the forecast horizon. As such, headline inflation is set to reach 6.2% in 2023, before slowing down to 3.3% in 2024 on the back of the gradual fall of energy prices. 

The energy crisis and the economic slowdown add burden on public finances

While pandemic-related government measures weighed considerably less on public finances in 2022 than in 2021, the budgetary cost of measures to mitigate the impact of high energy prices keeps the projected budget deficit at high levels in 2022, at 5.2 % of GDP compared to 5.6% of GDP in 2021. The higher expenditure from the automatic indexation of public sector wages and social benefits to rising consumer prices is projected to be only partly offset by the impact of higher wages and purchasing power on the revenue side.
 
In 2023, the government deficit is forecast to increase further to 5.8 %, reflecting the deteriorating macroeconomic landscape, while the cost of energy-related measures is assumed to decline on the back of the announced phasing-out of most of them in the first quarter of 2023. At the same time, the automatic indexation of public sector wages and social benefits, a rising interest rate burden, as well as lower corporate tax revenue due to lower profit margins, are also expected to have a negative impact on the government budget balance.  

In 2024, the government balance is projected to slightly narrow, to 5.1% of GDP as crisis measures are assumed to be withdrawn and the economic outlook is expected to improve. The still high government deficit in 2024 also reflects the growth in non-crisis current expenditure, which is notably due to rising ageing costs and to the budgetary impact of recently adopted permanent measures not offset by compensating measures.

Government debt is forecast to decrease from 109% of GDP in 2021 to 106% in 2022 (due to the high GDP deflator), before increasing to 108% of GDP in 2023 and to 109% 2024, driven by high budget deficits.