After a strong recovery from the COVID-19 pandemic, the Belgian economy has shown resilience to recent shocks including supply bottlenecks and high inflation. Private consumption and business investment have remained robust, and energy-related government support measures helped maintain household purchasing power. However, the fiscal deficit and debt remain too high.
The latest forecasts GDP growth at 1.2% in 2024, down from 1.4% in 2023, and 1.4% in 2025, as financial conditions improve. The public debt-to-GDP ratio, already one of the highest in the OECD before the pandemic, is expected to be at 110% in 2025. Without consolidation measures it is projected to grow further, as ageing costs and climate transition demands put additional pressure on future budgets. Inflation declined rapidly amid drops in energy prices in 2023 and is expected to reach 4.3% in 2024, up from 2.3% in 2023, before declining to 2.0% in 2025 as second-round effects from wage growth and excess demand diminish.
Risks to long-run fiscal sustainability are significant. Addressing the fiscal challenge requires a credible consolidation strategy, with increased public spending efficiency as the cornerstone. Conducting spending reviews can help identify efficiency gains with clear savings objectives and follow-up actions. Encouraging higher employment rates will be key to address fiscal challenges, sustain economic growth, and reduce labour market participation gaps, including for older and lower-skilled workers.
In 2023, 67% of working-age people in Belgium were in employment, compared with the OECD average of 70%. Strengthening in-work benefits for low-paid workers and second earners would ensure that, once in employment, increasing work effort pays off. There is a relatively high and increasing uptake of disability benefits among working-age people. Better supporting the integration of persons with reduced work capacity in the labour market would help close the employment gap between persons with and without disability.
The Survey also finds that administrative burdens and skills shortages can compromise business performance, particularly in the small and medium-sized enterprise (SME) sector. A whole-of-government strategy could reduce administrative costs. Efforts to address skills shortages should be further supported by helping small businesses develop training strategies and make the best use of public training programmes. Encouraging and supporting female entrepreneurs could unlock additional potential within the SME sector.
Achieving climate targets will require a significant acceleration in emissions reductions. Part of the solution lies in setting more binding climate targets and improving co-ordination of climate policy across federal and regional governments. This would help accelerate the expansion of renewable energy production, especially as Belgium has committed to phasing out nuclear energy generation by 2035. Clear regulations of future standards, together with adequate and well-targeted financial incentives, would sustain household investment in energy efficiency and electrification, particularly in transportation and for building renovations.
