Economic growth is projected to weaken to 0.9% in 2024, before reaching 1.2% in 2025 and 1.4% in 2026. Household consumption growth should support the recovery in 2025 and 2026, as job growth increases again and inflation declines. Continued easing of financing conditions and improving global trade prospects should also support housing investment and export growth. Headline inflation is set to rise to 4.3% in 2024 due to rising energy inflation and persistent core inflation. However, as second round effects fade, headline inflation should fall to 2.9% in 2025 and 2.1% in 2026.

The fiscal deficit is expected to widen in 2024 and only stabilise in 2025 since coalition negotiations following the elections make consolidation unlikely. The fiscal stance is set to turn contractionary in 2026, as the government is expected to put public debt on a downward path as per the new EU fiscal rules. Strengthening in-work benefits for low-paid workers and abolishing the partial tax splitting for couples should encourage greater labour market participation and help address labour shortages.

GDP growth has remained steady, with third quarter growth of 0.2%. Household consumption growth slackened, as the effects of the automatic indexation of wages and transfers faded. Job creation has also weakened, and still high borrowing costs and weak confidence have dampened domestic activity. The unemployment rate declined in the second quarter of 2024 to 5.4%, although 0.7% less vacancies were created than in the first quarter. Housing investment has been held back by high financing costs, but mortgage lending is now rising again, with 4.8% more credit granted in the second quarter of 2024 compared to a year earlier. Industrial production rose 6% (year-on-year) in September for a third consecutive month, and by the most since November 2022. Headline inflation rose to 4.5% in October (up from 4.3% in September), mostly due to higher natural gas, tobacco, and electricity prices. Core inflation, excluding energy, food, alcohol and tobacco, slowed to 2.9% in October.

The global slowdown in trade has continued to affect Belgium exports significantly, which fell by 2% in the second quarter of 2024. Belgium is regaining price competitiveness, but the wage gap between Belgium and its neighbouring countries (the Netherlands, Germany and France) is not falling as fast as expected. Retail energy prices have risen substantially as higher natural gas and electricity prices feed through rapidly in Belgium due to the prevalence of variable rate contracts.

The fiscal deficit is expected to increase again in 2024. While federal and regional governments recently made efforts to begin consolidation and sovereign bond spreads have remained stable, the debt-to-GDP ratio is still on a rising path and expected to reach 109% in 2026 (Maastricht definition). Significant deficit reduction is unlikely in the near term due to lengthy coalition negotiations. A no policy change scenario is assumed for 2024 and 2025. The fiscal stance is projected to turn contractionary from 2026, as new EU fiscal rules require Belgium to commit to a multi-year downward trajectory for its public debt and deficit.

Real GDP is projected to grow by 0.9% in 2024, 1.2% in 2025 and 1.4% in 2026. Household consumption growth is expected to pick up as inflation falls, financing conditions ease and job growth improves. Still high interest rates will hold back housing investment initially, before it recovers as interest rates decline. Fiscal consolidation in 2026 is expected to generate only mild headwinds. Exports will begin to recover from 2025, as demand in key European trade partners strengthens and Belgium regains price competitiveness. Headline inflation is projected to rise to 4.3% in 2024 mostly due to rising energy prices and the phase-out of energy support measures, before declining to 2.9% in 2025 and 2.1% in 2026, amid wage moderation and fading second round effects. Key risks to the outlook include a greater impact from persistent inflation on household consumption growth, and a further drag on exports if neighbouring countries’ growth does not catch-up as expected.

Belgium has one of the largest debt-to-GDP ratios in the European Union, at 103% in 2023. Federal and regional governments continue to run deficits well above 2019 levels despite long-run projections pointing to significant risks of an unsustainable increase in public debt. Renewed efforts are needed to put the public debt burden on the downward path envisaged in the new EU fiscal rules. Belgium must also raise labour participation rates to address widespread labour shortages and complement budgetary consolidation measures. Strengthening in-work benefits for low-paid workers and removing large threshold effects would encourage greater labour market participation. Abolishing the partial tax splitting for couples would also reduce disincentives to participate for low-income second earners, who are mostly women.