Country Forecast Belgium January 2018 Updater

Country Forecast Belgium January 2018 Updater

  • January 2018 •
  • Report ID: 362254 •
  • Format: PDF


  • The four-party centre-right government that took office in October 2014 is dominated by Flemish parties and for the first time includes the separatist New-Flemish Alliance (N-VA). The government's fiscal consolidation and reform agenda will continue to cause conflict between the coalition partners, but The Economist Intelligence Unit expects the coalition to remain broadly stable and effective and to serve its full term to 2019.
  • We expect Belgium to remain a single state over the medium term. The N-VA agreed to pursue economic reform rather than devolution when it joined the current parliament, and its campaign platform for the 2019 election is focused on security, identity and the economy rather than Flemish autonomy. In the longer term it may press for consensus on building a confederal state.
  • We expect the budget deficit to narrow slowly, with tax revenue picking up as economic growth stays robust. We estimate a 2.1% of GDP shortfall in 2017, narrowing from 2.5% in 2016, but consolidation will slow as the 2019 elections approach. Public debt will remain higher than 100% of GDP, declining only gradually over 2018-22, but bond spreads suggest investors view the sovereign as fairly safe, reflecting in part a strongly positive net external asset position.
  • Government wage moderation measures in 2013-16 and a modest shift in the tax burden from labour to consumption last year have improved Belgium's competitiveness vis-à-vis its regional peers. However, poor productivity trends in some sectors will hold back longer-term growth rates, as will population ageing, with the working-age population expected to decline from 2021, and a comparatively inefficient allocation of resources, given low entrepreneurship.
  • After 1.7% growth in 2017 we expect 1.5% average annual real GDP growth in 2018-19 as modest labour market tightening and a recovery of consumer confidence combine with a cyclical upswing in the euro zone, and low interest rates support investment spending. In 2020-22 we forecast average annual growth of 1.2% as the economy slows towards its long-term trend growth rate.
  • The external environment is likely to present headwinds to growth. We forecast a policy-led slowdown in Chinese growth in 2018, a mild cyclical downturn in the US and less attractive trade relations with the UK after Brexit.
  • Annual consumer price inflation (EU harmonised measure) peaked at 3.3% in February 2017, and we estimate 2.2% average inflation in 2017, mainly driven by energy price base effects. We forecast a slowdown to 1.7% price growth in 2018 as an electricity tax introduced in 2015 is phased out and the rise in the oil price moderates. We expect 1.9% average annual inflation in 2019-22.


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