The National Bank of Belgium (NBB) has expressed growing concerns regarding the country's budget deficit and declining competitiveness. National Bank Governor Pierre Wunsch stated,

"We are operating with one engine instead of two, which leaves us vulnerable."

While the Belgian economy is performing better than anticipated, with the NBB projecting annual growth of 1.4%, compared to the previous forecast of 0.6%, this growth is solely driven by domestic demand. The country's exports are suffering due to a decline in competitiveness.

The issue stems from automatic wage indexation, which has resulted in higher wage growth in Belgium compared to neighboring countries. Although there is an attempt to catch up, Wunsch believes it will not be sufficient to restore the original situation.

To sustain growth, either more individuals need to join the workforce or productivity must increase.

Additionally, Belgium faces a significant budget deficit. Once again, the country will fail to comply with European fiscal discipline. Wunsch remarks that there needs to be a fundamental shift in policy-making, referring to the austerity measures implemented after the 1970s oil crisis.

Belgium's budget deficit decreased from 5.5% in 2021 to 3.9% in 2022. However, maintaining this trend may prove challenging.

In April, the European Commission called for a reduction of Belgium's budget deficit by 0.5% annually to ensure it falls below 3% eventually. However, according to the Federal Planning Bureau, an independent institution responsible for economic, social, and environmental policy analysis, if policies remain unchanged, Belgium could face a deficit of 5.9% and a debt approaching 120% of GDP by 2028. The bureau recently reaffirmed this trend. Photo by MADe at Dutch Wikipedia, Wikimedia commons.