The Belgian economy grew by 1% in 2024. According to the most recent projections, this growth rate will remain virtually unchanged over the projection horizon. Specifically, economic activity is forecast to grow by 1% in 2025 and by 1.1% in 2026 and 2027. Cumulative GDP growth has been revised downwards by at least half a percentage point from the autumn projections, mainly due to policy changes and a less favourable international environment having regard, in particular, to the scope and unpredictability of US trade restrictions.
The international environment and domestic policy shifts are tempering growth
US trade policy has triggered unprecedented levels of uncertainty and led to a downward revision in the global trade outlook. The baseline scenario for these projections assumes further negotiations, leading to a 10 percentage point increase in the existing tariffs on European exports to the US and maintenance of the exceptions currently in place, including for pharmaceuticals. It is also assumed that the EU will not adopt retaliatory measures and that trade uncertainty will gradually abate.
On the domestic front, the federal government formed at the end of January is committed to labour market and pension reform. The proposed measures, along with savings in other areas, will curb economic growth somewhat as from 2026, while the economic benefits are expected to fall outside the current projection period for the most part. Incidentally, the foreseen increase in defence spending will only partly offset the effects of these austerity measures.
Domestic private demand should continue to grow at a fairly constant pace while net exports weigh on GDP growth
The contribution of domestic private demand should hold fairly steady over the projection horizon. Household consumption rose sharply in 2024 but is set to gradually slow, due among other factors to a clear fall in purchasing power growth. The latter is forecast to increase by, on average, 0.6% per capita per annum over the projection period, but this figure is mainly pushed up by 2025, when the delayed effect of indexation (at a time when inflation is already falling again) will provide a temporary boost. Strict application of the wage norm will continue to constrain wage growth; as from 2026, fiscal measures will also drag down purchasing power growth, as will higher fossil fuel prices, starting in 2027, due to the entry into force of EU ETS2.
Business investment growth has noticeably cooled recently, and the particularly low capacity utilisation rate in the manufacturing industry indicates little need for expansion investments. In these projections, investment growth remains positive, but clearly lower than the long-term average. In the second half of the projection period, business investment growth should pick up somewhat as the overarching uncertainty begins to ebb.
Housing investment, which has fallen sharply in recent years, is also set to grow at a slower pace, implying a modest and incomplete recovery. At the end of 2027, housing investment is projected to be around 10% lower, in real terms, than at year's end 2019.
The outlook for Belgian exports has been revised downwards due to foreign demand. The Belgian economy could be relatively less affected, however, as pharmaceuticals, which are exempt from tariffs in the baseline scenario used for these projections, make up half the country's exports to the US. In 2026, Belgian export growth should gradually pick up, in step with the recovery in world trade, although some loss of market share is still to be expected, based on the historical average. Nonetheless, import growth is forecast to exceed export growth and net exports to continue to temper activity throughout the projection horizon.
Creation of 100 000 jobs
The new federal government is committed to labour market reform, mainly through a gradual reduction in unemployment benefits over the projection period. This should lead to job creation but may give rise to somewhat lower productivity growth. On the other hand, slightly weaker economic growth and high uncertainty mean less demand for labour. Overall, some 100 000 jobs are expected to be created between 2025 and 2027, around 10 000 more than indicated in the autumn 2024 projections. The unemployment rate will remain very low, at close to 6%.
Inflation to fall below 2%
Inflation has recently fallen to 3% but remains somewhat higher than in the euro area due to volatile components such as energy and food prices. International oil and gas prices recently eased again and are expected to contribute to milder energy inflation. The more expensive euro is making imported commodities and goods relatively cheaper. All in all, headline inflation should quickly fall below 2% in the autumn but briefly rebound temporarily in 2027 when the EU's new emissions trading scheme (EU ETS2) enters into force, which will affect fuel prices, among other things.
Wage cost growth should average close to two per cent per annum over the period 2025-2027 and, as in previous years, is expected to be driven almost exclusively by indexation. According to calculations by the secretariat of the High Council for Employment (HCE), there is no margin in 2025 and 2026 for collectively negotiated wage increases over and above adjustments due to automatic indexation. We assume that there will be no margin in 2027 either.
Budget deficit to widen further
These projections take into account for the first time the measures proposed by the new federal government, which slightly improve the budget balance over the projection horizon compared to last autumn's projections. However, the deficit is on track to widen further beyond 2024, to 5.6% GDP by 2027. While the primary expenditure ratio should decrease, interest expense is set to rise and revenue to fall relative to GDP. The debt-to-GDP ratio is projected to swell to 112.7% by 2027.