Belgian budget deficit to grow next year with major savings required

Belgium’s substantial budget deficit is set to continue widening and will likely exceed 5 per cent of GDP by 2026, the National Bank of Belgium (NBB) warns in its autumn forecast. To reverse the trend, the country needs to save 2 billion euros annually – a total of 10 billion euros over the next five years – NBB governor Pierre Wunsch said.

Although the real interest rate on Belgium’s debt remains low, the primary deficit remains high, Wunsch said. The public debt ratio is projected to be much the same as in 2023, at 105.2 per cent of GDP in 2024, while primary public spending heads towards stabilisation at 53 per cent of GDP.

With this budgetary outlook, Belgium ranks second to last in the European Union, ahead only of Slovakia. Nevertheless, Belgium’s GDP is expected to grow by 1.3 per cent in 2024, at a quarterly pace of around 0.3 per cent. Consumer spending is expected to sustain growth next year, backed by strong purchasing power, while public spending is ​ set to increase, a common occurrence during election periods. Foreign trade will remain sluggish, influenced by weak competitiveness.

After a fall in 2023, including a spell of deflation in autumn, inflation is projected to climb again in 2024. The end of the government's energy support measures is the main reason cited for this rise by the National Bank.

Labour costs

The bank also pointed out that the indexation of wages will continue to add to labour costs in the private sector, although less so than in 2023. The hourly labour cost in Belgium, compared to neighbouring countries, increased by 4 percentage points in 2022 and 2023, mainly due to the automatic indexation system. Forecasts suggest this wage disparity will be eliminated by 2026, as wages in Germany, the Netherlands and France rise faster than in Belgium in the coming years.

Secretary of state for the Budget Alexia Bertrand (Open VLD) expressed satisfaction with the NBB's predictions. She believes the federal government has taken the right political decisions, although deficit and debt levels need to be reduced.

^{State secretary for Budget Alexia Bertrand © BELGA PHOTO NICOLAS MAETERLINCK}

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