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Moderate recovery

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General Information

GDP USD420bn (World ranking 25, World Bank 2014)
Population 11.22mn (World ranking 77, World Bank 2014)
Form of state Federal Parliamentary Democracy under a Constitutional Monarchy
Head of government Charles Michel (MR)
Next elections 2019, legislative

Country Rating AA1note-circle-low-risk


  • Strong business environment
  • Relatively low corporate debt (45% of GDP)
  • Moderate household debt (62% of GDP)
  • Diversified export structure in terms of products
  • Presence of many European institutions – many languages spoken
  • High-skilled workforce


  • Highest corporate tax in the EU
  • High dependency to the eurozone business cycle
  • High public debt
  • High bank assets (above 250% of GDP)

Economic Overview

Ongoing moderate economic recovery, improving competitiveness is now a fact not a only a plan

GDP growth, standing at +1.4% in 2015, should slightly accelerate to +1.5% in 2016 and to +1.7% in 2017, in line with the eurozone average but below the country’s pre-crisis average of 2.2%.

Domestic demand should no longer be the main driver for growth in 2016. Consumer spending contributed more than half to 2007-14 real GDP growth thanks to moderate private indebtedness (62% of GDP), robust mortgage lending and solid wager growth.  Public spending has also been an important driver of growth over the past years as the pace of fiscal consolidation has been much slower than in other eurozone countries.

In 2016, private consumption is expected to slow down (+0.8%) given the ongoing « holiday » of the wage indexation rule (“Saut d’index”) and the measures planned within the 2016 Budget. First, the rise in indirect taxes (VAT on electricity, excises on diesel, alcohol, tobacco and sugary drinks) since November 2015 impact consumption through higher consumer prices (inflation rebounded to +1.5% y/y in December). Overall, inflation should stand at 0.8% in 2016 as the fall in oil prices will compensate part of the base effects linked to tax increases.

Second, the 2016 Government budget foresees a shift in taxation from labor to consumption in order to alleviate companies’ costs and boost competitiveness. Employers’ social security contributions should thus be cut from 33% to 25 % reducing tax burden on labor by EUR5.9bn by 2019. This tax shift, even if smaller on average than it seems given the existing exceptions, will support firms’ competitiveness that deteriorated significantly over the past years (see Figure 2). Labour costs in the business economy stand among the highest in the eurozone (41 EUR/hour) and increased at a fast pace since 2008 (+15% compared with +10% for France).

With the current reform, the contribution for an employee paid the minimum wage will be reduced by 6.5pp while labor costs for the median worker will fall by 1.75pp.  The reform should also help create jobs. The official estimates (IMF, National Bank of Belgium) point to an additional 35-40K jobs of which more than one third would be among the lower-skilled. Unemployment rate decreased quite fast to 7.9% in January 2016 from 8.5% at the start of last year and is expected to reach 7.8% in 2016. However, the overall impact will be highest in the services and the construction sector where competition is not that high while the industrial sector, where wages are higher, will benefit less.

The ongoing labour market reforms have also targeted the pension system: (i) a gradual increase in the legal retirement age from 65 to 66 in 2025 and 67 in 2030 and (ii) an increase of the minimum age and career length for early retirement starting in 2017.
The reforms are expected to lower the annual growth of pension costs in the long term from the 4-5% per year. Indeed, even if Belgium exited the Excessive Deficit Procedure in June 2014 despite the fiscal deficit being marginally above 3% of GDP (see Figure 1), triple digit public debt (106.5% of GDP in 2015),  primary balance deficit (-0.1% of GDP) and still weak nominal GDP growth make the public deleveraging process quite tough.

Better financing conditions for companies, higher margins, lower business insolvencies

Financing conditions, including rates on bank loans, have improved over the past few years, particularly for SME. In December 2015, SME bank loans’ interest rates on bank loans (over 5 year maturity) were 1.8%, down from 2.2% in June 2014 (see Figure 4). Demand for loans has also picked-up since mid-2015 with the stock of loans rising by +4.8% y/y in January 2016 (see Figure 5).
Non-financial corporations’ margins have thus picked-up in mid-2015 thanks to lower financing costs and lower oil prices. They stand above the Eurozone average and cached-up with the German ones (at 41%, +0.5pp since start of 2015, see Figure 3). Likewise, the weaker euro had a positive external shock in 2015 both for margins and turnover. It also contributed to a strong growth in exports (+3.4% in 2015 in real terms).
In 2016 and 2017, business insolvencies are expected to continue to fall, by -4% and -5% respectively, but remain 25% above the 2007 levels (see Figure 6).
Last review: 3/21/2016