Weakening sentiment

The heightened economic uncertainty increasingly weighs on sentiment of Belgian businesses. In March, the NBB barometer slipped to its lowest level since January 2024. All sectors surveyed, with the exception of trade, contributed to the fall of the indicator. The business-related services sector saw the most significant downturn in confidence, followed by manufacturing and construction. Consumer confidence dropped markedly as well in March, almost completely reversing the marked increase seen in the previous month (see figure BE1). The decline was due mainly to rising fears over unemployment, which had abated substantially in February following the announced reforms of the new federal government. Consumers’ expectations concerning the general economic situation fell sharply too, reaching their lowest level since November 2022.

March’s drop in Belgian survey-related data reflects current turbulent times, with concerns about US tariffs in particular deepening doubts over near-term recovery momentum. Growing caution among both businesses and consumers is also seen in the euro area as a whole, as both the EC’s economic sentiment indicator (ESI) and consumer confidence indicator dipped further below their long-term averages in March. Country-level shifts were mixed, though. Belgium is among the group of countries, including also France and Italy, which experienced (sharp) declines in sentiment in March, while other countries, including Spain and Germany, reported (slight) improvements (see figure BE2). For Germany, the brighter mood, which is also visible in national indicators like the Ifo and ZEW, is undoubtedly due to the country’s future looser fiscal policy (see text on the international economy). 

Stimulus spillover

While tariffs complicate the near-term outlook for the Belgian economy, we think that the large European budgetary expansion may alter the economic prospects for 2026 and beyond. Spillovers from Germany’s ‘fiscal bazooka’ to the Belgian economy in particular will likely be non-negligible. From the literature, we know that spillovers from bigger countries’ fiscal policy are generally more positive for small open economies which share a land border and trade extensively with the country (see e.g. Beetsma et al., “Trade spill-overs of fiscal policy in the EU: a panel analysis”, Economic Policy, Vol. 21, Issue 48, 2006, p. 640–687). Considerable additional defence spending by the Belgian government may provide an extra impulse to GDP growth, albeit somewhat less due to defence multipliers being relatively low.

We roughly estimate the impact of the stimulus on Belgian economic activity at 0.8% of GDP, spread over several years. Due to implementation lags, it will likely take time before the extra spending may take effect. Hence, we currently stick to our cautious 0,7% growth forecast for 2025. Higher US import tariffs on European goods, which we already factored into the scenario early on, will weigh on Belgian growth. From 2026 onwards, the first effects from the stimulus will kick in and partially compensate for the tariff effect. In the light of this, we are revising our growth forecast for 2026 upward by 0.2 percentage points to 1.1%. With this, the 2026 figure continues to be at the lower end of the range of forecasts made by other institutions. We see the biggest impact from the fiscal stimulus in the years beyond 2026, lifting up Belgian growth by an estimated 0.3 percentage points in both 2027 and 2028. Stronger growth is likely to result in a modest rise in inflation from 2026 on. We now forecast Belgian inflation of 1.8% in 2026, i.e. 0.1 percentage points higher than in our previous outlook.

The scenario continues to be subject to a high degree of uncertainty. Risks on the downside mostly pertain to the trade environment, with tariffs and trade policy uncertainty possibly derailing the Belgian economy more than expected. Likely, the US-imposed tariffs on all EU products imported into the US will not be reversed any time soon. Besides their direct trade impact, the negative effect on Belgian economic activity could eventually be bigger due to indirect effects such as a loss of confidence. On the upside, the expected big shift in EU and especially German policies could support growth more than expected via the confidence channel. After the recent weak performance, next month’s NBB barometer may already shed some light on whether Belgian businesses see the fiscal turnaround as something positive rather than fearing the announced tariff hike.