The readings for sentiment indicators on the Belgian economy came in quite mixed in recent months. Consumer confidence dipped slightly in April, following a stabilisation in March and consecutive drops in February and January. The NBB business barometer fell in April, after having risen for two consecutive months. Importantly, several forward-looking survey indicators for both the manufacturing and construction industry now seem to have bottomed out, although remaining at very low levels (see figures BE1 and BE2). This may indicate that the worst in both sectors may lie behind us. Based on this signal, we slightly upgraded our forecast for Belgian real GDP growth in both 2024 and 2025 from 1.1% to 1.2%. With this, the growth outlook is fully in line with the latest IMF outlook on Belgium published mid-April, but still a bit more cautious than the one of the Federal Planning Bureau published mid-February (i.e., 1.4% in 2024 and 1.3% in 2025).   

Belgian HICP inflation was further up in March reaching 3.8%, from 3.6% in February. Core inflation (i.e., excluding energy and food) on the contrary fell again, from 4.0% to 3.8%. Energy price dynamics caused Belgian headline inflation to rise above euro area inflation again in the past months. In particular, in March Belgian inflation was 1.4 percentage points higher than the euro area figure, while in October last year it was still 4.6 percentage points lower (see figure BE3). The positive core inflation gap with the euro area remained unchanged at 0.9 percentage points. We stick to our average annual inflation forecast for 2024 and 2025, at 3.8% and 2.1% respectively. The recently published IMF forecast is slightly lower at 3.6% and 2.0%, respectively.

House prices rebound

Early April, Eurostat published harmonised house price figures for Q4 2023. Belgian prices rose by no less than 2.2% against the previous quarter. For newly built dwellings (+5.9% qoq) the price rise was much bigger than for existing dwellings (1.3% qoq). For the full year 2023, the house price increase in Belgium came out at 2.5%, as against a price drop of 0.3% and 1.1% in the EU27 and the euro area, respectively. For a large majority of EU countries, house price dynamics in 2023 were strongly correlated with their economic growth. Countries with a relatively good GDP growth performance in 2023 (Belgium, Bulgaria, Greece, Spain, Croatia, Cyprus, Malta, Portugal, Romania, Slovenia) saw decent or even strong further increases in house prices. Countries with a negative or weaker GDP growth (Czech Republic, Germany, France, Italy, Luxembourg, the Netherlands, Austria, Slovakia, Finland, Sweden) saw house prices fall or only very limited increases.

It is notable that for Belgium all past data of the harmonised house price index have been revised. In particular technical changes were made in the hedonic price model as well as in the aggregation procedure. Previously, the index was directly compiled at the Belgian level. Now, the index at the national level is derived from regional indices, using fixed weights per region (yearly adjustable). Due to the technical revisions and following the strong Q4 figure, the average house price increase in 2023 (2.5%) came out above our latest prediction (2.0%). We decided to slightly increase the price outlook for 2024, from 2.2% to 2.8%, and for 2025, from 2.5% to 3.0%. While in 2023, house price growth again outpaced general CPI inflation, albeit marginally, it is expected to lag behind inflation again in 2024, as was the case in 2022.

Precarious public finances

In the past weeks, a lot of news and new figures came out on Belgium’s public finances. First, in a report published 26 March, the Monitoring Committee, a group made up of officials from the Ministry of Finance, predicted the budget deficit and debt ratio will rise to 6.3% and 119% of GDP by 2029, assuming an unchanged policy. A similar, albeit somewhat less pessimistic, outlook was provided by the new IMF outlook published 16 April, i.e. a deficit at 5.6% and a debt ratio at 116% by 2029. The figures show once again that keeping control of the budget will be one of the most important policy challenges during the next years.

In its advice, published 29 March, in preparation for the Stability Programme 2024-2027, the High Council of Finance estimated the necessary structural effort (based on the current budgetary rules) at 31 billion euros during the next five-year reign. The advice is still based on the current budget rules and the Federal Planning Bureau's February projections. The latter are somewhat less pessimistic about public finances than the Monitoring Committee's more recent forecasts. Under the new European budgetary framework, which received the approval of the European Parliament on April 23, Belgium's effort would be somewhat smaller and a more gradual path over seven years could be chosen, provided credible investments and reforms are made.

On 22 March, the European Commission published its annual Debt Sustainability Monitor. Belgium is one of two EU Member States (the other one being Slovakia) that were still found to be at high fiscal sustainability risk in both the medium and long term. The classification reflects a significant increase in ageing costs in combination with the unfavourable initial budgetary position. In line with this, on 15 April, rating agency Fitch warned that Belgium’s latest pension reform measures will not alleviate the increasing cost pressure of the ageing population on public finances. Fitch has maintained a negative outlook on Belgium’s AA-sovereign rating since March last year. Given the concern about public debt dynamics, we believe that the Belgian 10-year interest rate spread with Germany will increase moderately from around 50 basis points today to 80 basis points towards year end 2024.