The policy agenda of the next United States President Donald Trump will have significant repercussions for the Belgian economy, KBC's chief economist Hans Dewachter warns.
Trump's election earlier this month spurred concerns about what this could mean for people's rights, democracy in the country, the rise of the far-right, global security and the global economy.
Dewachter's economic outlook, presented on Monday, paints a bleak picture. Trump's protectionist policy agenda has "significant implications for the global economic outlook" and will create "stagflationary shocks", which are economic effects leading to stagnation and inflation.
With Republicans taking control of both the House of Representatives and the Senate, Dewachter thinks it likely that Trump will deliver a large portion of his America-first agenda, as well as enforce his hardline on migration. His re-election, along with a Republican majority in Congress, increases the likelihood of geopolitical turmoil and the US central bank losing independence.
Three 'major' shocks
Dewachter highlights three major shocks. Firstly, he expects a trade shock triggered by import tariffs. This is predicted to push up prices and thus reduce consumer purchasing power. This creates an unfavourable investment climate. Secondly, a migration shock will slow or even halt labour force growth, limiting US manufacturing capacity.
Finally, a potential "fiscal shock" could lead the government to increase spending and lower taxes. But these would unlikely offset the negative effects of the trade and migration shocks.
In light of these predictions, KBC lowered its 2025 growth forecasts for the US from 1.9 to 1.7%, Belga News Agency reports. The KBC economists also expect upward pressure on inflation under Trump's presidency, primarily felt in the US itself. "With inflation already above the 2% target in the US this additional increase is not desirable."
Impact on eurozone and Belgium
Trump's trade policies would have the greatest impact on the eurozone, with import tariffs expected to hit countries exporting to the US. As a result, KBC expects economic recovery in the eurozone to be slower. The Chinese economy will likely be affected as well as Trump intends to impose even tougher tariffs on the Asian superstate, which is strongly reliant on exports.
"All this will make the tasks of central banks more complex," Dewachter said. "In the eurozone, where Trump's trade agenda will boost inflation but dampen growth, the European Central Bank (ECB) is under pressure." KBC expects the ECB to reluctantly opt for growth support.
In the US, the Federal Reserve's (Fed) task will also not get any easier. "Inflation risks are increasing while President-elect Trump is committed to a weak-dollar policy." KBC expects the Fed to continue easing monetary policy, "but at a much slower pace".
The US protectionist turn could also seriously damage the Belgian economy, according to Dewachter. By 2023, goods exports to the US accounted for over 6% of total exports, making the US Belgium's largest trading partner outside the EU.
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KBC therefore lowered its 2025 growth forecast for Belgium by 0.4 percentage points to 0.6%, which marks a slightly steeper decline than the -0.3 percentage point revision for the eurozone.
"In the updated scenario, Belgian industry remains under pressure with possible additional job losses," the report noted. Inflation is likely to be somewhat higher and more persistent in the coming years than has been predicted so far.
