Alarm bells are ringing for Belgian economy

The Belgian economic outlook has seen better days. In the Flemish newspaper De Tijd, 22 economic experts warn for the consequences of the spending of the Belgian federal government. In 20 years, the country has gone from a primary surplus of 6.8% of its GDP to a primary deficit of 3%. A turnaround of almost 10% of the Belgian GDP, or about 54 billion in today's euro.

The experts warn for the consequences of the COVID-19 pandemic, the war in Ukraine, the ageing demographic and interest rate increases. And yet, the government keeps increasing its spending. "There's no sense of urgency about our public finances," write the economists.

The news comes while the Belgian government is trying to find a compromise on pension reform. Several measures are being discussed: the reintroduction of a pension bonus, the part-time pension, and a strengthening of pension rights for women. Access to the minimum pension, which has already been raised to 1.500 euros, is proving to be the major bottleneck in the talks, that have been going on for weeks. 

The automatic indexation of wages is another contentious issue in the country. Worker's unions wants to keep the indexation in place, while the Federation of Enterprises in Belgium (VBO) wants to put it on pause, at least temporarily, in order to protect Belgian companies from inflation and rising energy costs.

"We have been warning about this since the end of last year, but first the problem was denied, then it was said that high inflation was temporary and now there is procrastination," said top VBO executive Pieter Timmermans. "But this problem will not solve itself. If we do nothing, we are guilty of failing to act. We should not wait for the first big bankruptcy before taking action."

In the meantime, the European Commission announced their downward revision of economic forecasts for 2023. The eurozone economy is expected to grow by only 1.4% in 2023, instead of the 2.3% that was predicted back in May. Belgium's growth forecast for next year has been revised from 1.8% to 1.3%. 

The inflation rate is expected to fall over the course of next year. Whereas in May the Commission predicted that prices would rise by 6.1% in 2022, it is now forecasting a rise of 7.6%. However, it expects inflation to peak at the end of this year and to fall to 4% in 2023. In Belgium, annual inflation will amount to 9.4% this year and 2.9% next year. 

"The unprovoked Russian invasion of Ukraine continues to send shock waves through the global economy," said European Commissioner for Economic Affairs Paolo Gentiloni. "The momentum of the reopening of our economies is going to support growth this year, but for 2023 we have to revise our forecasts downwards."




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