Economic growth in Belgium is expected to remain broadly stable over the forecast horizon, at 1.3% in 2024 and 1.4% in 2025. The phase-out of government measures to limit price increases is set to push inflation up to 4.0% in 2024, before it falls to 2.3% in 2025. The government deficit is projected to stabilise at 4.4% of GDP in 2024, before increasing to 4.7% of GDP in 2025 driven by upward pressures on permanent current spending. Government debt is expected to remain stable at 105 % of GDP in 2024, and to increase to 107% of GDP in 2025.
| Indicators | 2023 | 2024 | 2025 |
|---|---|---|---|
| GDP growth (%, yoy) | 1.4 | 1.3 | 1.4 |
| Inflation (%, yoy) | 2.3 | 4.0 | 2.3 |
| Unemployment (%) | 5.5 | 5.6 | 5.4 |
| General government balance (% of GDP) | -4.4 | -4.4 | -4.7 |
| Gross public debt (% of GDP) | 105.2 | 105.0 | 106.6 |
| Current account balance (% of GDP) | 0.0 | -0.4 | -0.5 |
A resilient economy
Economic activity expanded by 1.4% in 2023 thanks to robust private consumption and a rebound in corporate investment. Real GDP is expected to continue to grow at similar pace in 2024 and in 2025. In the first quarter of this year, real GDP growth reached 0.3%.
Private consumption is set to remain strong over the forecast horizon, as consumers purchasing power is supported by the automatic indexation of wages and social benefits. The high saving rate in 2023 is projected to decrease over the forecast horizon.
Throughout 2024, residential construction is set to continue to be held back by high financing costs. In contrast, adjustment to the energy transition and the implementation of the Recovery and Resilience Plan are set to support gross fixed capital formation. Public investment is also projected to accelerate in the run-up to the 2024 elections. Overall, investment is forecast to grow by 1.5% in 2024 and 2025.
Exports declined by 3.3% in 2023, notably due to weakening demand from trading partners. In 2024, exports are projected to further drop due to carry-over effects. However, the improving external environment is expected to result in a return to a robust positive yearly growth rate in 2025. Imports are also set to decline in 2024, but strong domestic demand and the loss of competitiveness are set to lead to a negative contribution of net exports to GDP growth of 0.2 pps. The contribution of net exports to GDP growth is forecast to be neutral in 2025, following the recovery of exports.
All in all, real GDP growth is expected to reach 1.3% in 2024, and 1.4% in 2025.
Slowdown in employment
After attaining 0.8% in 2023, employment growth is forecast to slow down to 0.4% in 2024 and 0.6% in 2025 while the unemployment rate is expected to remain broadly stable in the forecast horizon at 5.6% in 2024 and 5.4% in 2025. Driven mostly by the automatic indexation of wages, compensation of employees per head is set to grow by 3.5% in 2024 and 2.6% in 2025.
A rebound in inflation
Inflation fell to 2.3% in 2023, reflecting the fast transmission of declining wholesale gas and electricity prices to retail prices, along with the knock-on effect of government measures to mitigate the impact of high energy prices. The phase-out of these measures is set to push headline inflation to 4.0% in 2024. In 2025, it is expected to drop again to 2.3%. As upward underlying cost pressures recede over the forecast horizon, headline inflation excluding energy and food is set to decline in 2024 to gradually return to values close to 2% in 2025.
Government deficit to deteriorate further despite withdrawal of crisis measures
In 2023, the government budget deficit reached 4.4% of GDP, driven by the automatic indexation of public sector wages and social benefits, ageing costs, and rising interest payments. This increase in deficit occurred despite the complete phasing-out of COVID-19 emergency temporary measures, estimated to have amounted to 0.5% of GDP in 2022. Furthermore, the net budgetary cost of the measures to mitigate the impact of high energy prices is estimated to have declined to 0.4% of GDP in 2023, compared with 0.8% in 2022.
In 2024, the government budget deficit is projected to stabilise at 4.4% of GDP. The savings generated by the full phasing-out of the measures to mitigate the impact of high energy prices and to support firm’s competitiveness in 2024 is expected to be offset by structurally rising current expenditure (ageing related fiscal costs in particular), and by higher interest payments on public debt. In 2025, based on unchanged policies, rising fiscal costs stemming from demographic ageing and higher interest payments are projected to result in an increase of the government budget deficit to 4.7% of GDP.
Government debt reached 105.2% of GDP in 2023. It is projected to remain broadly stable in 2024, due to a debt reducing stock flow adjustment related to an excess of cash in end-2023 following the issuance of short-term state notes. In 2025, debt is expected to rise to 106.7% of GDP driven by the high budget deficit. The projected steady increase in interest payments and the normalisation of nominal economic growth is set to make the interest rate - economic growth differential less favourable than in previous years.