Economic Perspectives for Belgium

The earlier NBB flash estimate for Belgium’s Q2 2023 real GDP growth was confirmed at +0.2% qoq, down from the +0.4% growth rate recorded in the first quarter of the year. Growth in the second quarter was, once again, strongly driven by household consumption (+0.5%). The further expansion of consumption followed solid purchasing power growth, fuelled by continued job creation and the deceleration of inflation. Employment growth strengthened again in Q2, with nearly 19,000 net jobs being added (+0.4% qoq). Business investment (+2.1%) was a big contributor to Q2 growth, too, despite the weakening of business sentiment since April. The new surge brought business investment back to its pre-pandemic level. Households’ residential investment, on the contrary, fell by 1.2% in Q2, confirming the declining trend of the previous quarters and signalling once more that the housing market is cooling off. Government consumption contracted by 0.6% while public investment rose by 0.5%. With exports contracting more sharply (-1.0%) than imports (-0.8%), net exports had a negative impact on the change in GDP (-0.2 percentage point) (see figure BE1).

Growth slowdown to continue

In our scenario, we see quarterly GDP growth of the Belgian economy slowing further but remaining positive in the current and next quarter, as most leading indicators point to more weakness ahead. Consumption growth, in particular, likely will slow to a more moderate pace. While the Belgian labour market still looks overall resilient, vacancy rates have declined somewhat and employment prospects in the NBB barometer have turned negative in all three main sectors. Also, with survey indicators regarding the housing market remaining bleak, household investment in dwelling is expected to remain a drag on GDP growth (see figure BE2). Growth in business investment will likely lose steam as well. The low and declining capacity utilisation in industry indeed signals a lesser need for investments in extra capacity, while tightened credit conditions weigh on corporate loan demand. Finally, the assessment of export order-books in industry remains pessimistic, pointing to a continued negative growth contribution of net exports.

Based on this assessment and outlook, we kept the forecast for Q3 qoq GDP growth at 0.10% but have slightly lowered the quarterly growth path for Q4 2023 and Q1 2024. The downward changes do not impact our annual growth outlook for 2023, which stays at 0.9%, but do lower annual 2024 growth to 0.9%, from 1.0% seen previously. The minor downward revision is in line with the increasingly gloomy external environment and, hence, with the downward growth revisions for the euro area. Our 2024 growth figure (0.9%) now is well below the consensus forecast (at 1.1%) and the recently updated forecast by the Federal Planning Bureau (at 1.3%).

The moderate growth environment casts a shadow over Belgium’s public finances. The public deficit is estimated to rise to around 5% of GDP in both 2023 and 2024, up from 3.9% in 2022. Given rising interest costs and additional spending on pensions, healthcare and defence, the fiscal situation moreover is unlikely to improve over the medium term, if policies stay unchanged. A rising deficit could also lead to growing public debt, which without structural changes in policy could eventually become unsustainable (see our research report ‘A Worrying look at Belgium’s public finances’). In the coming years, the Belgian government faces the difficult task of reducing the deficit in order to put the post-crises debt ratio back on a sustainable path. This consolidation is necessary to create room for new policies and to respond to the various challenges Belgium is facing. It will require more fiscal discipline than in the past. Since 2000, the Belgian government has met its own fiscal target from the annual Stability Programme only a few times (see figure BE3). 

Economic forecasts August 2023

National accounts (real yearly change, in %)

              2022 2023 2024
Private consumption 4.1 2.4 1.6
Public consumption 3.1 -0.3 1.3
Investment in fixed capital -0.8 2.1 2.0
Corporate investment -1.4 3.2 2.4
Public investment -1.3 4.7 2.5
Residential building investment 1.3 -2.6 0.6
Final domestic demand (excl. changes in inventories) 2.6 1.6 1.6
Change in inventories (contribution to growth) 0.5 0.0 0.0
Exports of goods and services 5.1 -0.2 1.9
Imports of goods and services 4.9 0.5 2.7
Gross domestic product (GDP) 3.2 0.9 1.0
Household disposable income -3.1 4.1 1.2
Household savings rate (% of disposable income) 12.5 13.9 13.6

Equilibrium indicators 

              2022 2023 2024
Inflation (average yearly change, in %)      
Consumer prices (harmonised CPI) 10.3 2.5 3.2
Health index (national CPI) 9.2 4.3 3.4
Labour market      
Domestic employment (yearly change, in '000, year end) 74.9 34.0 37.5
Unemployment rate (in % of labour force, end of year, Eurostat definition) 5.7 5.8 5.7
Public finances (in % of GDP, on unchanged policy)      
Overall balance -3.9 -5.0 -4.9
Public debt 105.1 105.6 106.7
Current account balance (in % of GDP) -3.6 -2.0 -1.6
House prices (average yearly change in %, existing and new dwellings, Eurostat definition) 5.6 1.0 1.5

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