The Belgian Government's budget balance is forecast to "worsen substantially" over the next two years, as the National Bank of Belgium (NBB) predicts that the country's deficit will "deteriorate" to 5.5% of GDP.
In its spring economic projections, the NBB said that after already "sharply deteriorating" last year, the country's budget deficit is expected to increase to 4.8% in 2024, and to 5.5% by 2026.
The central bank said that this is due to two factors that are driving up structural spending: increased pension and health spending due to Belgium's ageing population, and rising interest expenses on public debt.
For 2024, the NBB added that the deficit will be increased due to automatic indexation of government spending outweighing the indexation of private sector wages, and local government spending is expected to peak given that it is an election year.
Belgium's public debt ratio is expected to rise to 105.6% of GDP this year, and the NBB predicts that it will grow to just shy of 111% by 2026.
The NBB emphasised that its projections for public finances are based only on government measures that are already known, or are sufficiently specified and "very likely" to pass the legislative process.
In light of the federal, regional and European elections taking place this weekend, the central bank noted that there will be increasing pressure for Belgium to consolidate its public finances and the extent and impact of future fiscal consolidation is unknown.
Belgian economy 'resilient'
The Belgian economy should continue to grow by around 0.3% on a quarterly basis, picking up slightly from 2026 onwards. The NBB said this would mean an annual growth rate of 1.2% for 2024 and 2025, and 1.4% in 2026.
Job creation practically ground to a halt in late 2023, but the NBB expects it to gradually pick up. The central bank predicts that 90,000 new jobs will be created in Belgium between now and 2026.
NBB Governor Pierre Wunsch said that while this is "significantly lower" than in previous years, it will still be enough to keep Belgium's unemployment rate at a historically low level of less than 6%.
Having faced economic shocks such as the Covid-19 pandemic, energy crisis and inflation in recent years, Wunsch said that the international economy is "weathering the storm relatively well and remains on track for a soft landing." As inflation rates decrease, growth has "held up well", with the global economy expanding by 3.5% in 2023.
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As core inflation in Belgium peaked in mid-2023 and is now declining, the NBB said it should fall below 2% on average next year.
Wunsch said that as global trade recovers from the pandemic, Belgian export markets are "expected to expand steadily as of early 2024, by about 0.8% on average per quarter, following negative growth in 2023."
