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Belgium GDP growth is projected to slow considerably from 2.9% in 2022 to 0.5% in 2023 in the face of high inflation and heightened uncertainty, before picking up to 1.1% in 2024. Private consumption will remain weak until mid-2023 despite the automatic indexation of wages, which supports household purchasing power. Subdued net exports will contribute negatively to GDP over the projection period, as international competitiveness deteriorates and the economy is highly exposed to a slowdown in its main trading partners. Headline consumer price inflation is projected to average almost 10% in 2022 and remain high in 2023. The fiscal stance is expected to be neutral in 2023 and moderately restrictive in 2024. Better targeting of energy support measures while maintaining price signals is crucial for both fiscal sustainability and energy saving, and to limit further inflationary pressures. Clarifying the policy stance on nuclear power is necessary to ensure energy security. Introducing carbon taxation on all emissions is essential to promote green investments and enable the energy transition. The economy has slowed amid a deteriorating global outlook High energy prices, declining confidence and weakening international trade have slowed GDP growth, with output declining by 0.1% in the third quarter of 2022. Annual headline inflation surged to 13.1% in October, with persistently high energy inflation at 69.2% and steadily increasing food price inflation approaching 12%. The large 16-point drop in consumer confidence in September was close to that recorded at the onset of the COVID-19 pandemic, despite the automatic indexation that increased most nominal wages and welfare benefits by about 8% since January and prevented a larger decline in real incomes. Business sentiment has declined for several months, including a significant deterioration in construction demand expectations in October. The trade deficit increased by EUR 23 billion (about 4% of GDP) over the first eight months of 2022 compared to the same period in 2021.

Belgium

1. Provisional HICP data for October 2022. 2. For employees whose wages are automatically indexed based on the national consumer price index excluding alcohol, tobacco and motor fuel (about 60% of all employees). Source: OECD Economic Outlook 112 database; Federal Planning Bureau; National Bank of Belgium; and Statistics Belgium. StatLink 2 https://stat.link/xuifsd OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 2: PRELIMINARY VERSION © OECD 2022

80 

Belgium: Demand, output and prices 2019

2020

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)

478.6 245.7 110.2 116.2 472.1 3.5 475.6 394.4 391.4 3.0 _ _ _ _ _ _ _ _ _

2022

2023

2024

Percentage changes, volume (2015 prices)

Current prices EUR billion

Belgium

2021

-5.4 -8.3 0.0 -5.1 -5.6 -0.3 -5.8 -5.0 -5.6 0.4

6.1 5.5 4.8 4.9 5.2 0.4 5.5 11.3 10.7 0.7

2.9 2.5 1.0 -0.1 1.5 1.0 2.6 3.8 3.4 0.4

0.5 0.1 2.3 1.7 1.0 0.1 1.0 0.3 0.9 -0.6

1.1 2.2 0.7 1.1 1.6 0.0 1.5 1.3 1.7 -0.4

1.5 2.9 6.8 5.5 3.2 0.4 3.2 9.9 6.6 4.1 1.4 1.3 3.9 6.1 4.1 5.8 6.3 5.8 6.5 6.2 13.7 9.9 9.2 9.5 8.2 -9.0 -5.6 -5.2 -5.8 -5.3 140.9 129.8 126.8 127.6 129.2 112.0 109.2 106.2 107.0 108.5 1.1 0.4 -4.6 -4.4 -4.8

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. 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 112 database.

StatLink 2 https://stat.link/rbuzqj

Belgium imports all of its fossil fuels, notably through a major LNG terminal in Zeebrugge, but produces about 40% of its electricity consumption from six nuclear reactors. Gas storage is at maximum capacity since late September, but only covers 4% of annual gas consumption. In October, gas, electricity and heating oil were 131%, 85% and 58% more expensive than a year ago, respectively. Energy support for households includes untargeted measures (reduced VAT on electricity and gas, reduced excise duty on gasoline, lump-sum transfers) and measures targeted to lower-income groups (expansion of the social tariff on gas and electricity). Businesses benefit from temporary unemployment schemes, deferred tax and social security payments, and moratoria on debt payments. The fiscal cost of the support package is estimated to about EUR 5 billion (about 1% of GDP) for 2022 and EUR 4 billion (about 0.8% of GDP) for 2023.

Public finances are under pressure The budget deficit will reach 5.2% of GDP in 2022, down from 5.6% in 2021, helped by the phasing-out of pandemic spending but widened by the expansionary fiscal response to the energy crisis. The energy support package is expected to remain in place until the first quarter of 2024. Other fiscal measures include: a EUR 1 billion (about 0.2% of GDP) reduction in employer social security contributions and an estimated

 81 EUR 1 billion increase in defence- and security-related expenses. Fiscal plans are to be funded through both spending cuts, including in healthcare, and new revenue of about EUR 3.1 billion (0.6% of GDP), including an exceptional tax on excess profits in the energy sector. The fiscal stance is expected to be neutral in 2023 and moderately restrictive in 2024, with budget deficits of 5.8% and 5.3% of GDP, respectively.

Growth will be low but improve gradually GDP is projected to grow by 0.5% in 2023, held back by pressures on household disposable income, weak export market growth and losses in export market share, before picking up to 1.1% in 2024. High energy and commodity prices will weigh on private consumption, while rising long rates depress residential investment and mounting energy and wage costs exert a drag on exports. Business and government investment growth will resume, helped by EU funds, and support GDP, despite tighter monetary conditions. Both headline and core inflation are projected to subside, as financial conditions tighten, but to remain high over the projection period. A continued energy crisis could lead to a wage-price spiral on the back of automatic wage indexation. Supply bottlenecks could also disrupt investment. An acceleration of exports, from higher-than-expected growth in the main trading partners, is an upside risk.

Ensuring fiscal sustainability and energy security is key Fiscal support to attenuate the consequences of the energy shock should increasingly target low-income households and viable firms, while maintaining energy saving incentives. A consolidation strategy based on spending reviews is needed to rebuild fiscal buffers and lower the debt-to-GDP ratio gradually. Clarity on the energy policy stance, in particular on nuclear power, is crucial to ensure the security of electricity supply and achieve energy diversification away from fossil fuels. Explicit and predictable carbon taxation on all greenhouse gas emissions is required to promote low-carbon investments. Further removal of barriers to competition would boost productivity and attenuate the impact of increasing wages on international competitiveness.