Still decent start into 2026

Following 0.05% qoq growth in Q4 2025 (revised down from 0.20% and 0.11% in the flash and first estimate, respectively), the Belgian economy accelerated in Q1 2026, growing by 0.2% qoq according to the flash print. The figure was equal to what we had expected and broadly in line with euro area growth (i.e. 0.15%, or 0.24% excluding Ireland). As a flash release, the National Accounts Institute (NAI) does not yet provide information about growth drivers (the detailed Belgian GDP report with the growth contributions will be published on 29 May). Based on the preliminary estimate, value added in volume terms was down by 0.1% in industry and grew by 0.4% and 0.3% in construction and services, respectively (see figure BE1).

It was a good start to Q1 but one that likely cannot last. As the Iran conflict began on 28 February, it had only a partial impact on the first quarter. The negative impact is likely to be bigger in Q2. Meanwhile, survey sentiment has already deteriorated. Consumer confidence fell most markedly, dropping below its long-term average. Although weakening as well, confidence of businesses so far was less downbeat. In industry, both insufficient demand and shortage of equipment are seen more as factors limiting production (see figure BE2).

Moreover, capacity utilisation in the sector has declined in Q2 for the second quarter in a row. Labour market data also paint a less rosy picture. Domestic employment data for 2025 have been revised down, with net job creation over 2025 at 16,600, as against 20,900 reported earlier. Services in particular are seeing a clear slowdown in employment (see figures BE3).

We expect only a meagre growth of 0.05% in the second quarter, followed by 0.15% and 0.25% growth in the third and final quarter of 2026. This results in annual GDP growth in 2026 being 0.6%, unchanged from last month’s outlook. For 2027, we kept annual GDP growth unchanged as well, at 1.1%. The scenario highly depends on how and when the Iran war will be resolved, with the Strait of Hormuz for the moment remaining a critical bottleneck. Our view is still based on the assumption of the conflict being temporary and having a relatively benign outcome, but risks to the forecast are clearly tilted to the downside.

Inflation climbs higher

Belgian inflation (based on the European HICP) rose significantly in April, up 2.1 percentage points to 4.3% (see figure BE4). As in March, the ongoing energy shock was the key driver behind the rise in headline inflation. Energy prices increased 10.7 mom, pushing the annual energy price inflation up from 2.1% to 18.4%. Core inflation (excluding energy and food) ticked up 0.4 percentage points to 3.3%. Outside of core, food inflation edged up 2 percentage points to 2.0%. Looking ahead, we now forecast Belgian inflation to average 3.2% this year before slowing to 2.1% in 2027. Both figures are slightly higher than the ones in our previous outlook, reflecting higher-than-expected inflation in April as well as higher futures prices for oil and gas compared to a month ago. 

After Eurostat published the Q4 2025 house price figures (discussed in the April update of our perspectives publication), the ECB recently released its valuation metrics for housing markets in the EU countries in that quarter. Figure BE5 ranks the 27 Member States by the state of their housing market, from most overvalued to most undervalued, as reflected in the average of the four metrics calculated by the ECB. According to this average, the housing market was overvalued by close to or more than 20% in 11 out of 27 member states in Q4 2025 (see also KBC Economic Brief published on 18 May). Belgium is among the middle group of countries, where the average of the metrics is positive but below 10%. According to the ECB econometric model approach (represented by a black asterisk in figure BE5), the Belgian market was correctly valued in Q4 2025. That finding is consistent with KBC’s econometric model-based valuation estimate, which was at -0.3% in Q4 2025.