Belgium Country Risk Report & Analysis

Steady activity to pick up only slightly in 2025-2026, challenged by fiscal woes

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

Last updated in January 2025.

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Form of state	Constitutional parliamentary monarchy
Head of government	Alexander De Croo (PM, outgoing)
Next elections	2029, legislative

Strengths & Weaknesses

Moderate growth and resilience throughout the double crisis
Resilient labor market
Private consumption remains supported by wage-indexation mechanism
Resilient financial sector proves resilient, improved profitability and capital position of banking sector
Strategically located at the heart of Europe, home to international institutions and workers

Under strong EU fiscal scrutiny, given large public deficit and high public debt ratio; no significant consolidation efforts are foreseen in the short term
Automatic wage indexation translates into more persistent price pressures and hampers competitiveness
Export-oriented country suffering in a weak global demand environment
Political fragmentation persists

Economic Overview

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Economic activity will continue to face headwinds

Belgium’s pace of activity stabilized in 2024, supported mainly by private consumption and investment. Household spending remained solid, thanks to both government support during the double crisis and wage indexation, which protected consumers’ purchasing power. And although it has been volatile, investment also expanded and is now 4.4% above pre-pandemic levels. Public investment drove the increase while housing investment remained weak – currently 12% below pre-pandemic levels.

Inflation declined rapidly in 2023 amid declining energy prices but inflationary pressures remain. Base effects from the previous year played out strongly in 2024 and Belgium’s CPI remained one of the highest in the Eurozone (2.7% on average in 2024). In particular, by prompting cost and price responses by businesses, wage indexation became an important driver of core inflation and has temporarily weighed on price competitiveness. Further monetary policy easing should provide some relief to the long-lasting fears of a wage-price spiral as Belgium is one of the few Eurozone countries to have an automatic wage-indexation system for most incomes. Also, increasing saving rates and intention should provide some support to ease the pace of wage growth.

Looking ahead, declining inflation (expected at 2.0% in 2025) and recovering consumer confidence should provide some support to private consumption and household investment in 2025. However, we expect only a gradual rebound in trade given weak global demand. Overall, we expect GDP to expand by +1.2% in 2025 and by +1.4% in 2026.

The labor market has shown some signs of cooling, with the unemployment rate now up to 5.8% (compared with 5.3% in December 2019). Moreover, labor is less seen as a constraint to production and Belgium’s vacancies rate, albeit still one of the highest in Europe, decreased to 4.9% at the end of Q3 2024, from the 6% peak in Q1 2022.

Fiscal outlook further challenged by new rules

The pandemic and energy crisis increased Belgium’s already-high public debt and structural fiscal deficits and public finances remain a hurdle for the medium-run outlook. The public deficit is expected to stay around 5.0% of GDP in 2025-2026, and public debt is expected to stay around 107% of GDP. The increase in non-temporary current expenditure over 2022-2023 was driven by the automatic indexation of public sector wages and social benefits, but also by rising aging costs and by permanent measures taken by the government during the pandemic (i.e. increase in the minimum pension and health care sector wages).

The European Commission launched an Excessive Deficit Procedure against Belgium in summer 2024 for breaching the 3% deficit target but the government has not yet submitted the Medium-Term Structural Plan as requested by the new framework. The plan was originally due to be submitted in September 2024, but the country, whose incoming government is still being formed, was granted a first postponement. The plan should consist of a trajectory that respects the requirements of the new European budgetary rules, and also include reforms and investments that justify extending the adjustment period from four to seven years, which would make the effort less painful.
In 2024, the manufacturing sector recovered gradually from the 2022-23 setback. Belgium has many energy-intensive companies that suffered from higher energy prices and labor costs. We expect industry to continue to recover in 2025 as demand improves and costs normalize further.

The NGEU funds could provide some cushion to the 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 economy’s innovation capacity, while also making public spending more efficient and sustainable. Allocated funds amount to EUR5.9bn (of which EUR264mn is in the form of loans).

Business environment and political developments

Belgium remains an extremely attractive place to invest; it ranks 21st among the most competitive nations in the world, according to the International Institute for Management Development classification. The country is strategically situated in Europe and is home to many EU institutions, NATO and numerous multinational company headquarters. It has an international rail, air and shipping infrastructure that makes it one of the best locations for industry and logistics.

Government coalition talks are facing their last deadline: negotiations must be wrapped up by the end of January 2025. After their surprise win in the election in June 2024, Bart De Wever has been trying for months to form a government comprising five parties: the right-wing nationalist New Flemish Alliance (of which he is the chair), the Francophone center-right Reformist Movement, the Francophone centrist Les Engagés, the centrist Christian Democrat and Flemish Party and the center-left Flemish Forward party. The possible coalition would make 82 seats out of a total of 150. If he clinches a deal, De Wever will be prime minister, leading a center to center-right leaning government, focused on plugging Belgium’s budget gap. But if the talks fail, the country could run out of options and be set for new elections, which would give the far-right Vlaams Belang a new shot at becoming Belgium’s largest party.

Trade Structure by destination/origin

(% of total, 2023)

Trade Structure by product

(% of total, annual2023)

Contacts

Maddalena Martini

Economist

maddalena.martini@allianz.com