National Bank concerned about Belgian budget deficit and declining competitiveness

The National Bank of Belgium (NBB) is increasingly concerned about the country's budget deficit and declining competitiveness. "We are flying with one engine instead of two, which makes us vulnerable," says National Bank governor Pierre Wunsch.

Although the Belgian economy is performing better than expected - the NBB expects annual growth of 1.4 per cent, compared with an earlier forecast of 0.6 per cent - growth comes entirely from domestic demand. The country's exports are suffering from a deterioration in competitiveness.

This is a consequence of automatic wage indexation, which has led to higher wage growth in Belgium than in neighbouring countries. There is a catch-up movement, but according to Wunsch, it will not be large enough to return to the original situation.

"At some point, there has to be a fundamental break in the way policy is made"

Another problem is the working-age population, which will stop growing in the coming years and eventually shrink. To maintain growth, more people must be put to work, or productivity will have to rise.

On top of that, there is the high budget deficit. Belgium will once again not comply with European fiscal discipline. "At some point, there has to be a fundamental break in the way policy is made," says Wunsch, referring to the austerity policy that followed the oil crisis of the 1970s.

Belgium's budget deficit fell from 5.5 per cent in 2021 to 3.9 per cent in 2022

In April, the European Commission announced that Belgium's budget deficit should be reduced by half a per cent each year. In this way, the government should ensure that it eventually falls below 3 per cent. Belgium's budget deficit fell from 5.5 per cent in 2021 to 3.9 per cent in 2022. But this is a trend the country probably can not keep up. ​

In March, the Federal Planning Bureau - Belgium's independent public institution that produces studies and forecasts on economic, social and environmental policy issues - published an analysis showing that if policies remain unchanged, Belgium will face a deficit of 5.9 per cent and a debt of almost 120 per cent of GDP by 2028. On Thursday, the bureau again confirmed this trend.



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