Belgium's economic future amidst rapid wage inflation;
✔ By 2024, wages are projected to have jumped by almost 30% in just four years
✔ Due to its unique wage indexation system, Belgians can expect a net increase in their purchasing power this year
✔ The rapid increases has raised concerns about the system being unsustainable
Despite inflation cooling in recent months, wages are expected to increase substantially next year, the Federal Planning Bureau noted in its latest outlook for the Belgian economy.
In its September outlook for the Belgian economy published on Thursday, the Federal Planning Bureau offered its predictions on a wide range of key economic indicators until 2024. One of the most notable elements was the fact that Belgium's expected growth figures for 2023 and 2024 have been revised downwards, with the Bureau citing a "deterioration in the international environment".
However, another figure stood out, related to wage growth as a result of the automatic wage indexation system in Belgium, which automatically increases workers' wages with inflation and other factors. The Planning Bureau predicts that wages will rise in 2024 – and by a hefty amount.
For 2023, wage costs will rise by 7.9%, followed by another 4.3% in 2024. After the sharp wage increases that were recorded in 2022, this means that by the end of next year, the costs of wages will have risen 26% in four years. This is good news for workers, as wages will also go up this year and next.
As a result of wage indexations, purchasing power in Belgium is holding up better than in neighbouring countries, a trend that will continue as a result of this system: this year, net purchasing power will rise by 3.5% and next year by 0.4%.
No lay-offs, but competition fears
The report stressed that, while fast-increasing wages threatened to make labour too expensive in the past, making employers hesitant to hire new people or lay off current workers, the rapidly rising wages will not lead to a net loss of jobs this time around.
However, there are also indirect negative effects. The current pivot index, which tracks the health index, is expected to be exceeded this month and in February and June next year. Civil service salaries and benefits will go up by 2% for each overshoot, resulting in the government facing another rising cost.
"The indexation of wages and social benefits respond to inflation with some lag and would therefore be significantly higher than inflation this year," it noted.
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The Planning Bureau stated that, with slightly higher inflation next year, this could result in a third overshoot, as the health index may surpass a new threshold by the end of the year. In that case, wages will once again increase by over 8% in 18 months.
There are also concerns over competitiveness: Belgian business owners have complained that the automatic wage indexation system is untenable when faced with rising inflation, leading to a drop in the competitiveness of the Belgian economy. This is due to the so-called wage handicap created by the wide gap between its wages and those of workers in other countries.
