Belgium Country Risk Report

Belgium’s economic activity expanded at a quite constant (modest) pace since the second half of 2022, after having recovered strongly from the pandemic in 2021 and early 2022 (it plunged -5.7% in 2020). Overall, GDP expanded by +1.4% in 2023 and has remained in line with the Eurozone average so far in 2024, helped by private consumption. In particular, household spending has remained solid, thanks both to government support during the energy crisis and to the wage-indexation which protected consumers’ purchasing power. Housing investment has been declining since the beginning of 2022, but further monetary easing should provide some support to real estate activity.

The disinflation trend has reverted recently, with inflation touching its highest level in 10 months in June 2024. This is primarily due to the end of the “Basic Energy Package”, which reduced households’ electricity and natural gas bills and we expect this to have an increasing effect on inflation until February 2025. Core inflation remains well above the ECB’s target of 2%: it increased to 3% in June from 2.8% in May.
Given that Belgium is one of the few Eurozone countries to have an automatic wage-indexation system for most incomes, wage growth began much earlier than in other Eurozone countries and started to drop in the beginning of 2024. Also, increasing savings rates and intentions should provide some support to ease the pace of wage growth.

Looking ahead, stabilizing inflation and recovering consumer confidence should provide some support to private consumption and household investment, which we expect to pick up in the second half 2024. Therefore, we expect activity to gradually recover and forecast GDP to expand by +1.2% in 2024-2025.

The labor market remains very tight, with the unemployment rate low and expected to stay around the current rate of 5.6%. Belgium’s vacancies rate remains one of the highest in Europe (5.1% at the end of Q1 2024).

Belgium remains an extremely attractive place to invest; it ranks 21st among the most competitive nations in the world, according to the International Institute for Management Development classification. The country is strategically situated in Europe and is home to many EU institutions, NATO and numerous multinational company headquarters. It also has international rail, air and shipping infrastructure that make it one of the best locations for industry and logistics.

On the political side, Prime Minister De Croo announced his resignation after his party’s (the Flemish liberal Open VLD) defeat in European elections as the anti-immigrant and separatist Vlaams Belang party gained ground. However, more extreme parties did not win as much as was feared and expected. Since then, five Belgian political parties have agreed to start formal coalition talks led by Bart De Wever, the president of the Flemish-nationalist party New Flemish Alliance (N-VA), which obtained the most votes after the election in June.