Belgium

High energy prices to strongly impact economic performance

AA1

LOW RISK for entreprise

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

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GDP	USD 599.9bn (World ranking 23, World Bank 2021)
Population	11.6mn (World ranking 80, World Bank 2021)
Form of state	Constitutional parliamentary monarchy
Head of government	Alexander De Croo (PM)
Next elections	2024, legislative

Updated in October 2022.

Strong business environment
Diversified export structure in terms of products
High company profitability and equity ratios
High-skilled workforce
High share of foreign direct investments
High level of innovation

One of the highest tax burdens on the private sector in the EU
Very high corporate debt
High public debt
High dependency on the Eurozone business cycle
High external liabilities

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A slowdown at the end of 2022, followed by a recession in 2023

Belgium’s economic activity recovered strongly from the pandemic in 2021 (after the plunge of -5.7% in 2020), thanks also to the comprehensive government support to protect businesses and employment. The recovery continued in H1 2022, with GDP growing by +0.5% and +0.2% q/q in Q1 and Q2, respectively. In Q2, there was a slight expansion across all components but investment recorded a -1.1% quarterly drop.

Inflation continued to increase in September, reaching 11.27% y/y, its highest level since August 1975, from 9.9% the month earlier. Upward price dynamics were still driven by persistently high energy prices, which were up more than 60% in September, and accounts for 5.4% of the total inflation basket. In addition, food inflation accelerated sharply in recent months (at 10.4% y/y in September). Moreover, the broadening effects of surging energy prices led core inflation to jump to 6.2%, compared to 5.7% in August.

Looking ahead, the high level of inflation and the deterioration in consumer confidence are expected to weigh on private consumption and household investment. On the business side, high costs stemming from surging input prices and wages , as well as supply-side constraints, are expected to impact corporate investment. Furthermore, we expect a slowdown of import and export growth, given the weakening demand. We expect activity to slow down markedly at the end of 2022, followed by a recession in 2023, with GDP starting to recover only from H2 2023. Overall growth will reach +2.4% this year while we expect economic contraction of almost -1% in 2023.

Overall, public finances remain a hurdle for the medium-term outlook. The public deficit is expected to reach -6.2% of GDP in 2022 (from -5.5% in 2021) and public debt is also expected to stay around 107% of GDP in 2022. The increase in non-temporary current expenditure over 2022-2023 will be driven by the automatic indexation of public sector wages and social benefits, but also by rising aging costs and by the permanent measures taken by the government during the pandemic (i.e. increase in the minimum pension and health care sector wages).

The energy-intense manufacturing sector will take a hit

In August 2022, the production index showed a decrease of -6.1% compared to the previous month (and a drop of -10.3% compared to August 2021). Indeed, Belgium has many energy-intensive companies and energy prices and labor costs are rising faster here than in other European countries. In addition, the pharmaceuticals sector is normalizing after the “artificially inflated” 2021 growth due to the massive production of Covid-19 vaccines. But output also fell sharply in several other industrial sectors (the metal sector, which consumes a lot of energy, reduced its output by 15% y/y). We expect manufacturing to suffer further in Q4 2022 and H1 2023. Corporates are likely to struggle in 2022, and insolvencies are set to rise in 2023.

The NGEU fund could provide some support against the gloomy outlook in the coming quarters. The 35 related reforms are intended to address bottlenecks to lasting and sustainable growth, while the 105 identified investments are targeted to accelerate the transition towards a more sustainable, low-carbon and climate-resilient economy, to maximize the benefits of the digital transformation and to ensure social cohesion. The plan also intends to improve connectivity within the country, boost labor-market performance and the innovation capacity of the economy and make public spending more efficient and sustainable. The allocated funds amount to EUR5.9bn in grants.

Belgium remains an extremely attractive place to invest. The country is strategically situated in Europe and is home to many EU institutions, NATO and numerous multinational company headquarters. It also has international rail, air and shipping infrastructure that make it one of the best locations for industry and logistics.

Trade structure by destination/origin

(% of total, annual 2020)

Exports	Rank	Imports
Germany 16.6%	1	19.0% Netherlands
France 13.2%	2	14.4% Germany
Netherlands 11.6%	3	11.2% France
United States 8.6%	4	5.3% United States
United Kingdom 6.0%	5	4.9% Italy

Trade structure by product

(% of total, annual 2020)

Exports	Rank	Imports
Medicinal and pharmaceutical products 16.4%	1	13.1% Medicinal and pharmaceutical products
Road vehicles 11.7%	2	11.9% Road Vehicles
Organic chemicals 6.3%	3	6.2% Petroleum, petroleum products and related materials
Petroleum, petroleum products and related materials 4.1%	4	6.0% Organic chemicals
Plastics in primary forms 3.9%	5	4.6% Electrical machinery, apparatus and appliances, n.e.s.

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