Economic Perspectives for Belgium

Positive end to 2023

The flash estimate of Belgian real GDP growth in the final quarter of 2023 came out at 0.4% quarter-on-quarter. The Q4 figure surprised to the upside, as we had only figured in 0.2% growth. The positive surprise illustrates the continued resilience of the Belgian economy. As was the case in the previous two quarters, growth of economic activity in the fourth quarter of 2023 outpaced euro area growth (0.0%). Thanks to the better-than-expected Q4 figure, full year growth in 2023 was slightly better than expected as well at 1.5%, triple the euro area figure (0.5%). Remarkably, Belgium is one of the few European countries that did not record a single negative quarterly growth rate since the beginning of 2022. From a somewhat longer perspective, economic activity in Belgium at the end of 2023 was 5.5% above its pre-pandemic level (i.e., Q4 2019), compared with only 3.0% in the euro area.

As component data are not yet available, we do not have details on the drivers of Belgian Q4 growth. In the preliminary release, data on value added (at constant prices) in the three main sectors are published, however. Both the construction industry and the services sector continued to report positive growth of 1.0% and 0.7% in Q4 2023, respectively. In the manufacturing industry, value added again was down, this time by 0.6% (see figure BE1). This took the annual growth rate in the three sectors in 2023 to 1.9% in construction, 2.6% in services and -3.1% in manufacturing. 

Industrial recession

Despite the general resilience of the economy, industrial activity in Belgium has hit recession territory in 2023. The industrial weakness continues to be clearly visible in various both hard and soft indicators. E.g., the assessment of export-order books in manufacturing still trended down in January, while the capacity utilisation rate in the sector is at an historically low level. Remarkably, several indicators (like the two mentioned) reached a level nearly as low as during the trough in the pandemic year 2020 (see figure BE2). According to industrial production figures, activity in the pharma, chemical and textile sectors fell sharply in 2023, in particular. The sharp drop in value added (at constant prices) in the manufacturing industry for the full year 2023 (-3.1%) followed rather weak positive growth in 2022 (0.7%) and 2021 (2.5%) and was only marginally lower than the 2020 pandemic-related drop (-3.5%).

The bleak industrial environment causes us to stubbornly stick to a scenario where quarterly GDP growth will weaken in the current and next quarters. Also, the extraordinarily strong expansion in business investment seen in 2023 is unlikely to last, while the weakness in residential investment likely is not (fully) off the cards. More specifically, for the first and second quarter we continue to see growth at 0.2%, thereafter strengthening again to 0.3% in the third and fourth quarter, in line with our scenario for the euro area. Despite the unchanged quarterly growth path, the forecast annual growth rate of Belgian real GDP in 2024 has been upgraded by 0.2 percentage points to 1.1%, fully attributed to a higher carry-over effect caused by higher-than-expected growth in Q4 2023. For 2025, we continue to see Belgian real GDP growth at 1.1%.

Belgian HICP based inflation rose to 1.5% in January driven by energy, in line with expectations. While remaining high, the negative inflation differential with the euro area narrowed to 1.3 percentage points. Core inflation (i.e., excluding energy and food) was only marginally lower at 4.9% in January, still well above the euro area figure (3.3%). The good news is that services inflation, which has been quite sticky in relation to the euro area in previous months, now fell more substantially, reaching 5.1% down from 6.1% in December. We kept our average annual inflation estimate for 2024 and 2025 unchanged at 3.6% and 2.1%, respectively.

Budgetary worsening

According a first preliminary estimate by the Federal Public Service Policy and Support (BOSA), Belgium closed the 2023 fiscal year with a public deficit 6.5 billion smaller than feared at the time of the initial drafting of the budget, mainly thanks to stronger-than-expected economic growth (i.e., the growth estimate by the Planning Bureau in the draft budget was at only 0.5%). The bad news is that despite above-average growth, the budget deficit still increased to -4.6% of GDP, from -3.5% in 2022. The Belgian debt-to-GDP ratio rose to 105.8% of GDP, from 104.3% in 2022. This puts the country against the trend of the euro area, where the average deficit and debt fell to an estimated -3.2% and 90.6% of GDP in 2023, respectively. Moreover, in the current and next years, the Belgian deficit and debt are likely to worsen further assuming unchanged policies. Hence, it seems that the (new) European budgetary rules, which were put away during the crisis years, will force Belgium into a hard multi-year consolidation. Moreover, structural reforms will need to be intensified to sustain the consolidation.

Economic forecasts February 2024

National accounts (real yearly change, in %)

              2023 2024 2025
Private consumption 1.4 1.2 1.3
Public consumption 0.1 1.7 1.5
Investment in fixed capital 5.3 3.4 2.2
Corporate investment 9.0 4.8 2.5
Public investment 2.6 2.6 2.5
Residential building investment -5.2 -1.8 0.8
Final domestic demand (excl. changes in inventories) 2.0 1.8 1.6
Change in inventories (contribution to growth) 0.3 0.0 0.0
Exports of goods and services -3.5 -1.6 2.4
Imports of goods and services -2.6 -0.9 2.9
Gross domestic product (GDP) 1.5 1.1 1.1
Household disposable income 4.4 1.8 1.4
Household savings rate (% of disposable income) 14.7 15.2 14.0

Equilibrium indicators 

              2023 2024 2025
Inflation (average yearly change, in %)      
Consumer prices (harmonised CPI) 2.3 3.6 2.1
Health index (national CPI) 4.3 3.0 2.0
Labour market      
Domestic employment (yearly change, in '000, year end) 34.3 40.0 30.0
Unemployment rate (in % of labour force, end of year, Eurostat definition) 5.7 5.6 5.5
Public finances (in % of GDP, on unchanged policy)      
Overall balance -4.6 -4.8 -5.0
Public debt 105.8 106.0 107.2
Current account balance (in % of GDP) -0.9 -1.0 -1.0
House prices (average yearly change in %, existing and new dwellings, Eurostat definition) 2.0 2.2 2.5

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