The earlier flash estimate of Q1 2025 GDP growth was confirmed at 0.4% by the National Accounts Institute. The figure implies a strengthening of quarterly growth compared to previous quarters and shows that the Belgian economy still performed surprisingly well at the beginning of the year. Looking at the details, household consumption growth moderated (+0.6%) but continued to be the primary driver of GDP growth. Residential investment dropped by 1.3%. Government consumption and investment fell by 0.1% and 2.9%, respectively, with the sharp decline of the latter partly due to exceptional investments made in the preceding quarter. Business investment grew by a strong 1.7%. Exports and imports both contracted, by 0.4% and 0.5% respectively, resulting in a slight positive growth contribution of net exports (+0.1 percentage point). No clear impact was seen from frontloading of export flows due to the announcement of US import tariffs. Lastly, the contribution of changes in inventories to GDP growth was slightly negative at -0.1 percentage point (see figure BE1).

Striking indicators

The past months witnessed a number of striking indicators. First, after having declined in March and April, consumer confidence rebounded sharply in May and June. The improvement resulted from consumers’ more positive expectations concerning the economic situation and diminishing concerns about unemployment. The recent development of the indicator surprises given the growing global trade and geopolitical uncertainty. Moreover, the lower fears for unemployment are at odds with the effective evolution of the unemployment rate. As a second striking indicator, the Belgian harmonised unemployment rate rose substantially since the summer of 2024, partly following an upward revision by Eurostat of previously published data. The rate reached 6.4% in April, up from having recorded close to 5.5% between late 2023 and Autumn 2024. With this, the Belgian rate climbed above the euro area rate for the first time in almost 20 years (see figure BE2). 

At first glance, the worsening in the unemployment rate seems to indicate that the labour market, after having held up well during the past crises, is now seriously deteriorating. However, this contrasts with other labour market indicators that still perform good. For instance, net job creation picked up again in recent quarters: the first quarter of 2025 saw a quarterly increase of 0.3% in domestic employment, as against 0.1% and 0.2% in the third and fourth quarter of 2024 respectively. Services added more jobs again, construction stopped losing jobs and manufacturing lost fewer. The contrast in the data is explained by the fact that, in addition to the rise in the unemployment rate, the participation and employment rates have also rebounded in recent quarters. The participation rate (active population in % 15-74) increased more than the employment rate (people employed in % 15-74), which fuelled the rise in the unemployment rate (people unemployed in % of active population) (see figure BE3). For more details, see the new KBC Economic Research report of 27 June: "Belgian labour market experiences weaker period but no dramatic deterioration".

Minor scenario changes

No major changes were made to our growth scenario for the Belgian economy. We still believe that quarterly GDP growth will come to (almost) a standstill in the second and third quarter. More in particular, growth of final domestic demand is expected to moderate in the coming quarters, while the contribution to growth of net exports will likely become negative following the protectionist measures. Due to minor changes in the quarterly growth path, annual growth in 2025 was slightly upgraded from 0.7% to 0.8%. Annual growth in 2026 is expected at 0.8% as well, unchanged from previous month’s forecast. We did revise the forecast for the unemployment rate upwardly, this being only due to Eurostat’s revision of past data (see above). We now see Belgium’s harmonised unemployment rate at 6.6% by end 2025, further up from 6.4% in April, with the rate falling again to 6.4% by end 2026 following demographic pressure on the working-age population.

In May, Belgian headline inflation (HICP definition) fell to 2.8% on the back of a further decrease in energy and food price inflation. Core inflation (i.e., excluding energy and food) was only marginally down, reaching 2.1%. Our inflation outlook was kept broadly unchanged with only minor revisions of expected annual inflation, which now is at 3.0% in 2025 and 1.7% in 2026. Finally, on interest rates, it is noteworthy that Belgium's spread with Germany hardly reacted to Fitch's downgrading of Belgium's credit rating on 13 June. The rating agency cut Belgium's rating from AA- to A+ (with a stable outlook), citing deteriorating public finances and uncertain fiscal consolidation. It remains to be seen whether a possible additional rating downgrade by other rating agencies will have a bigger effect on the Belgian spread (Moody’s will update its rating on Belgium in October). Many investment funds are only required to sell bonds if a second rating agency also lowers its rating.