Belgium: Reforms benefit companies, but consumers pay the bill

3/22/2017 - Report
ic_blogtagBelgiumCountry Risk

Country Report

GDP growth declined to +1.2% in 2016, below the eurozone average of 1.7%. This was due to a large extent to the slowdown in the main driver for growth, domestic demand. 

Private consumption rose by a mere +0.7% on a backdrop of the freeze of wage indexation (since 2015) and the rise in several indirect taxes. In addition, the 2016 Government budget implemented a shift in taxation from labor to consumption and capital in order to alleviate companies’ costs and boost competitiveness. 

The rise in indirect taxes such as VAT on electricity (up to 21%), withholding tax (from 25% to 27%), and higher excise duties on tobacco, alcohol, diesel and soft drinks, coupled with the commodity prices’ recovery to push inflation above 2% at the start of 2017.

Going forward, the reforms should continue to support the labor market. The unemployment rate fell from 8.3% in January 2015 to 7.7% in January 2017. However, real wage growth is set to remain negative. This will curb private consumption growth to +1.1% in 2017.


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