Inflation upturn begins

Belgian inflation (based on the European HICP) rose 0.8 percentage points to 2.2% in March (see figure BE1). Looking at details, the sub-indices with the largest upward effect on inflation in March were motor fuels, domestic heating oil, plane tickets, medicines, restaurants and cafés. As expected, the ongoing energy shock was the key (but not the sole) driver of higher headline inflation. Energy prices increased 7.8% mom, pushing the annual energy price inflation up from -6.8% to 2.1%. Food inflation eased by 1.0 percentage points to 0.0%. Setting energy and food inflation aside, core inflation ticked up 0.3 percentage points to 2.9%. While services inflation was only marginally up (+0.1 percentage points to 3.7%), non-energy goods inflation increased 0.5 percentage points to 1.6%. 

Looking ahead, the magnitude and persistence of the ongoing shock will determine how high inflation will rise this year, as it determines the pass-through of higher energy prices into prices of other goods and services as well as whether second-round effects will appear. In our updated scenario, while still expecting the disruptions to be temporary, we see the energy shock feeding through to energy-sensitive core items somewhat more than expected in our previous month’s outlook. On the other hand, futures markets now price in somewhat lower energy prices in the remainder of 2026 compared to a month earlier. Taking things together, we currently forecast Belgian headline inflation to average 3.1% this year before slowing to 2.0% in 2027. The 2026 figure is slightly lower and the 2027 figure slightly higher than the ones in our previous outlook.

Unchanged growth outlook

The repercussions of the Iran conflict for economic activity highly depend on how and when the war will be resolved. Up until today, the latter remains highly uncertain, with the Strait of Hormuz remaining a critical bottleneck. Last month, we lowered our Belgian GDP forecast for 2026 by 0.4 percentage points to 0.6% and for 2027 by 0.2 percentage points to 1.1%. In the meanwhile, data that have become available are of no help drawing any new hard conclusion. Hence, we kept the growth scenario for the Belgian economy unchanged this month. The view is still based on the assumption of the conflict being temporary and having a relatively benign outcome. Risks to the forecast however are tilted to the downside, particularly if the Middle East conflict would persist for longer and more damage is done to energy infrastructure, leading to higher energy prices, even greater uncertainty, and potential supply chain disruptions.

The IMF scenario for Belgian growth (i.e. 0.7% in 2026 and 1.1% in 2027), published in April’s World Economic Outlook, is almost identical to KBC’s scenario. Interestingly, the IMF produces forecasts for a longer horizon till 2031. Over the period 2026-2031, average real GDP in Belgium is forecast by the IMF at 1.1% per year only, which is among the lowest figures in Europe (see figure BE2). 

It contrasts to the previous six-year period (2020-2025), when Belgian growth (1.5% per year on average) was well above euro area growth (1.1%) and ranked somewhere in the middle of 28 European countries (EU27 plus the UK). Relatively low growth in 2026-2031, moreover, is combined with Belgium still having the highest structural budget deficit by 2031 (at unchanged policy, see figure BE3). On April 17th, rating agency Moody’s downgraded Belgium’s credit rating from Aa3 to A1, citing concerns over the country’s budgetary and economic outlook. 

Q4 house price data

In early April, Eurostat published harmonised house price figures for the fourth quarter of 2025. Prices rose by 0.8% qoq in the total EU, as against 0.5% in Belgium (see also Economic Brief published 9 April 2026, “EU housing market boom continued in Q4 2025”). Viewed over the whole year, prices across the EU increased 5.5% in 2025 compared to a year earlier, which is stronger than the increase in 2024 (+3.4%). In Belgium, the price increase in 2025 was 3.2%, which is the same percentage as in 2024 (see figure BE4). It is notable that, in contrast to 2024, prices for existing homes (+3.8%) rose significantly more than those for new ones (+1.8%) in 2025. The Q4 2025 figure does not materially change our view of Belgian real estate. For housing (existing and new) as a whole, we forecast a price rise in Belgium of 3.0% in both 2026 and 2027, broadly similar to the rise in 2024 and 2025. With overall inflation slightly above 3% in 2026, our house price forecast for 2026 implies virtually zero growth in real house prices (i.e. adjusted for HICP inflation), as was the case in 2025.