OECD Economic Outlook – June 2022: Belgium

 85

Belgium Growth will continue to slow due to heightened uncertainty, but will remain robust at 2.4% in 2022, before falling to 1% in 2023. Domestic demand will be supported by automatic wage indexation, energy support measures and continued growth in employment. The unemployment rate is projected to stay above 6%.

Headline inflation will start subsiding through the second half of 2022, but core inflation will remain high over the projection period.

Fiscal policy will be expansionary in 2022 and contractionary in 2023. Support measures should be well targeted and temporary to maintain and deepen the recovery without compromising fiscal sustainability.

Increasing certainty for investments and promoting alternative energies is key to ensure the security of electricity supply and promote the green transition. Continuing to raise employment and implementing productivity-enhancing reforms is necessary to prepare for future shocks and enable the digital transformation.

Growth has slowed and risks have intensified The Omicron wave, high energy prices and supply constraints, including high vacancy rates, started to weigh on growth from late 2021, with 0.5% GDP growth in the first quarter of 2022. Heightened uncertainty and global commodity and energy market disruptions are adding to the slowdown, with a collapse in consumer confidence in March. Inflation was 9.9% in May, mainly driven by high energy price pass-through, and core inflation has been picking up. The automatic indexation mechanism, which is expected to increase public and private wages and social benefits by about 6% in 2022 and further in 2023, is supporting consumption, but weighing on competitiveness in the near term.

Belgium Consumer confidence has declined Balance, s.a.

20

Core inflation is picking up¹ % 12

% 80

Consumer confidence

← Headline inflation (HICP)

Business confidence

10

← Core inflation

9

0

60

Energy inflation →

6

40

3

20

0

0

-3

-20

-10

May 22

Feb 22

Nov 21

Aug 21

Feb 21

May 21

Nov 20

Aug 20

Feb 20

May 20

Nov 19

0

Aug 19

Feb 22

May 22

Nov 21

Aug 21

May 21

Feb 21

Nov 20

Aug 20

May 20

Feb 20

Nov 19

Aug 19

-40

May 19

-30

May 19

-20

1. Data for headline, core and energy inflation in May 2022 are provisional.

Source: National bank of Belgium.

StatLink 2 https://stat.link/0ido3t

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 1: PRELIMINARY VERSION © OECD 2022

86 

Belgium: Demand, output and prices 2018

2019

GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding¹ Total domestic demand Exports of goods and services Imports of goods and services Net exports¹ Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation² Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition³ (% of GDP) Current account balance (% of GDP)

2021

2022

2023

Percentage changes, volume (2015 prices)

Current prices EUR billion

Belgium

2020

460.1 238.2 106.5 108.5

2.1 1.8 2.0 4.4

-5.7 -8.2 -0.4 -6.1

6.2 6.4 4.4 7.8

2.4 3.6 1.3 -0.4

1.0 0.9 0.9 2.6

453.2 8.0

2.5 -0.6

-5.9 -0.3

6.2 -0.5

2.1 0.8

1.3 0.0

461.2 382.0 383.1 - 1.1

1.8 2.0 1.6 0.3

-6.1 -5.5 -5.9 0.4

5.6 9.6 9.1 0.6

2.9 0.8 1.3 -0.4

1.3 0.5 0.8 -0.2

1.8 1.2 1.5 5.4

1.3 0.4 1.4 5.8

4.3 3.2 1.3 6.3

7.2 9.0 3.9 6.0

3.4 4.8 4.9 6.4

_ _ _ _ _ _ _ _ _

5.5 13.7 9.9 10.0 10.6 -2.0 -9.0 -5.5 -5.6 -4.8 120.4 141.6 128.6 126.3 127.5 97.7 112.8 108.4 106.1 107.2 0.2 0.8 -0.4 -1.4 -0.3

1. Contributions to changes in real GDP, actual amount in the first column.

2. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

3. The Maastricht definition of general government debt includes only loans, debt securities, and currency and deposits, with debt at face value rather than market value.

Source: OECD Economic Outlook 111 database.

StatLink 2 https://stat.link/9nf0w4

The direct impact of the war is small, but indirect effects via confidence, trade and supply chains are significant. Natural gas accounts for about one quarter of final energy consumption, with a significant share indirectly coming from Russia. The petrochemical sector will face a disproportionate impact, as about 30% of oil imports are sourced from Russia. About 45 000 Ukrainian refugees had arrived as of late May and 100-200 000 (0.8-1.6% of the population) are expected by the end of the year.

The war is accentuating medium-term fiscal sustainability challenges The budget deficit narrowed in 2021 to 5.5% of GDP, helped by the phasing-out of COVID-19-related spending. The fiscal stance is expected to be supportive in 2022, as the energy crisis requires continued support measures, but restrictive in 2023, with budget deficits of 5.6% and 4.8% of GDP, respectively.

Easier access to the temporary unemployment scheme was extended until June 2022 due to the war.

Moreover, the extension of the social energy tariff has been prolonged and targeted lump-sum payments, one-off rebates on electricity and heating oil bills, reduced excise duties on gasoline, and reduced VAT on electricity and natural gas have been introduced. Automatic stabilisers, support measures and war-related expenses, such as refugee assistance and defence spending (EUR 1.25 billion budgeted), are expected to add almost EUR 4.5 billion (0.8% of GDP) in 2022 to the already high Maastricht public debt (108.4% of GDP in 2021). The labour market package adopted in February will promote employment by reducing social security contributions for low-wage workers, improving training opportunities and facilitating the return to work from disability leave.

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 1: PRELIMINARY VERSION © OECD 2022

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Growth is set to slow GDP is projected to expand by 2.4% in 2022, before slowing to 1% in 2023 as the consequences of the embargo on Russian oil materialise. High energy and commodity prices, supply chain disruptions and heightened uncertainty will drag on private consumption, investment and exports. Domestic demand will be the main driver of growth, as high household savings, automatic wage indexation and energy support measures mitigate the adverse effects of high inflation. Headline inflation is projected to subside due to base effects, a moderation in energy prices and monetary policy normalisation. Core inflation will remain elevated, as wage costs grow quickly due to automatic wage indexation. Geopolitical tensions and continued energy price pressures could lead to persistently high inflation and a wage-price spiral, while lower demand from main trading partners in Europe could dent growth. Supply bottlenecks, and especially labour shortages, could disrupt investment. An export boost from a faster-than-expected resolution of the war is an upside risk.

Targeting support measures and securing electricity supply are key Fiscal support to attenuate the near-term effects of the energy shock on vulnerable households and firms should be temporary and means-tested. A medium-term consolidation strategy based on spending reviews is needed to start lowering public spending and the debt to GDP ratio gradually. Contingency planning and clarity on the energy policy stance is key to ensuring electricity supply and promoting private investment in alternative energy sources, given heightened energy supply uncertainty and the planned phasing out of nuclear energy generation. Reaching the government’s employment targets requires better tailoring of active labour market policies to vulnerable groups. Further reforms to continue removing barriers to competition and ensure training quality within the planned individual training account are required to boost productivity growth and facilitate the digital and green transitions.

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 1: PRELIMINARY VERSION © OECD 2022