OECD Economic Outlook May 2019, Country Notes: Belgium

 95

Belgium Economic growth is projected to slow to around 1¼ per cent in 2019 and 2020 as export growth weakens.

Private consumption will be an important driver of growth, owing to employment gains and increased purchasing power of households. Government investment will be strong in 2020, and private investment will support growth over the projection period. Headline inflation will ease as past pressures, such as rising electricity prices, dissipate, but core inflation will edge up.

Fiscal policy will provide modest support to growth in 2019 and 2020, due to planned reductions in labour taxation. Productivity and external cost competitiveness would benefit from strengthened competition in professional services and from simplified administrative procedures and requirements to start a business.

Further reductions in transaction taxes on property and improving public transport infrastructure would make growth greener.

Growth continues to moderate Private consumption growth has decreased as consumer confidence fell, despite continued employment growth supported by labour tax cuts. However, consumer confidence shows some signs of stabilising.

Following a significant increase in business investment, business confidence has deteriorated in recent months. Export growth has slowed due to lower growth in Belgium’s main export markets. Inflation has fallen, reflecting a decline in energy prices. Wage growth has accelerated in a tight labour market.

Belgium The labour market has tightened

Government debt is falling but remains high

% of labour force 10

% 10

% of GDP 120

← Public debt, Maastricht definition

% of GDP 2

Government net lending →

8

8

6

6

4

4

2

2

← Unemployment rate

100

0

80

-2

60

-4

Job vacancy rate¹ →

0

2010

2012

2014

2016

2018

0

40

2000

2005

2010

2015

2020

-6

1. Business sector.

Source: OECD Economic Outlook 105 database; and Eurostat.

StatLink 2 https://doi.org/10.1787/888933934052

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019

96 ď ź

Belgium: Demand, output and prices 2015

2016

Current prices EUR billion

Belgium 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 definition (% of GDP) Current account balance (% of GDP)

411.1 210.0 97.8 95.0 402.8 2.4 405.2 332.1 326.2 5.9 _ _ _ _ _ _ _ _ _

2017

2018

2019

2020

Percentage changes, volume (2016 prices)

1.5 1.7 0.0 3.8 1.8 0.2 2.0 7.6 8.5 -0.5

1.7 1.1 0.4 1.8 1.1 0.0 1.1 5.0 4.3 0.6

1.4 1.0 0.9 2.9 1.4 -0.3 1.1 3.6 3.3 0.3

1.2 1.1 0.9 3.4 1.6 0.0 1.7 3.0 3.6 -0.5

1.3 1.6 1.0 1.7 1.5 0.0 1.5 3.1 3.3 -0.2

1.8 1.7 1.1 1.4 1.9 1.8 2.2 2.3 1.6 1.5 1.8 1.5 1.3 1.5 1.5 7.9 7.1 6.0 5.7 5.6 3.8 4.0 4.4 5.0 4.9 -2.4 -0.8 -0.7 -1.3 -1.5 129.0 122.4 120.4 119.5 118.3 106.1 103.4 102.0 101.1 99.9 -0.6 0.7 -1.3 -0.8 -0.8

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.

Source: OECD Economic Outlook 105 database.

StatLink 2 https://doi.org/10.1787/888933935135

Productivity, inclusiveness and long-term fiscal sustainability could be enhanced The budget deficit was 0.7% of GDP in 2018 and is projected to increase to 1.5% of GDP by 2020, with fiscal policy providing modest support to economic activity in 2019 and 2020. As public debt remains high, it is important that the government adheres to its medium-term fiscal targets to ensure a steady reduction of the debt-to-GDP ratio. To further improve the structural balance, greater efficiency in public spending should be encouraged. To boost economic growth and job creation, the authorities have developed the National Pact for Strategic Investments, with approximately 150 billion euros of investment envisaged in the areas of digital transformation, education, health care, energy and transport.

To better leverage productivity gains from digitalisation, the dissemination of intermediate ICT skills should be supported through adult education and training, and by generalising access to ICT as a minor/secondary field of study for all tertiary education students. Productivity would also benefit from increased competition, innovation and business dynamism. Ensuring that appropriate financing tools are available for young and innovative firms to scale up and further streamlining public support for R&D and innovation are of particular importance. Regulatory barriers to firm entry and exit should also be reduced and the insolvency regime reformed.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION Š OECD 2019

 97 To make growth more inclusive, the labour market performance of immigrant, low-skilled and older workers should be enhanced. Ensuring firms comply with federal legislation to provide workers with at least five working days of education and training per year would help. As the tax wedge on labour earnings remains one of the highest in Europe, labour taxes should be further reduced. Implementation of congestion charges, extending the company car scheme to other means of transport and allowing employees to substitute company cars for cash, improving public transport infrastructure and further reducing transaction taxes on housing would all help to make growth greener.

Growth is projected to stabilise GDP growth is projected to stabilise at around 1¼ per cent in 2019 and 2020. Private consumption will be an important driver of growth, supported by past and announced additional reductions in labour taxation, and robust wage growth. Favourable financial conditions will support private investment. Public investment will contribute to economic growth in 2020 with the launch of some major public investment projects.

Employment growth is projected to continue, albeit at a slower pace, pushing the unemployment rate down to 5.6% in 2020. Underlying price inflation will pick up gradually due to wage pressures resulting from a tight labour market. However, recent reforms of the wage setting system have been designed to better take into account international cost competitiveness. Economic growth could be weakened by continued uncertainty associated with Brexit or lower than expected euro area growth. On the upside, growth could be stronger if tax reductions enhance private consumption more than expected.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019