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Contents | Executive Summary | How to obtain this publication | Additional information
The following OECD assessment and recommendations summarise Chapter 1 of the Economic survey of Belgium published on 13 March 2007.
Contents
What are the main challenges?
Belgium’s economic recovery is becoming more durable. During 2006, the economy has picked up momentum, reaching an annual rate of 3% year-on-year. The economy has benefited from the EU–wide pick-up in activity, supportive monetary conditions and the beneficial effects of the multi-annual tax and labour market reforms that the government has implemented. Growth has slightly outpaced the euro area average since 2002. The upturn is projected by the OECD to continue at a rate exceeding potential over the next two years, almost closing the output gap by the end of 2008. Nonetheless, there are already signs that some production factors are under strain; capacity utilisation is approaching historic highs and an increasing number of firms report problems finding and hiring qualified workers. Moreover, exporters are losing market share as external competitiveness has deteriorated, partially because of more rapid increases of unit labour costs than among trading partners, but also for structural reasons, such as sectoral and geographic export composition. This indicates that further strengthening of the productive potential and a greater degree of wage flexibility will be essential to bolster long-term growth prospects. The persistence of high unemployment – despite stronger job creation – suggests that labour market reform should continue to be high on the policy agenda.
Evolution of relative unit labour costs and export performance
Source: OECD, Economic Outlook Database.
In a broader sense, the Belgian economy exhibits a number of strengths. The cyclical deviation of output from its trend has tended to be small in international comparison, reflecting sound macro-economic policies. This relative stability has perhaps reduced the potential costs of a fairly high degree of nominal rigidity insofar as very large adjustments in product and labour markets have not been needed in recent decades. The level of income per capita has remained high internationally. Belgium has also maintained comfortable current account surpluses, allowing for the continued accumulation of net foreign assets. While productivity growth has not been very dynamic in recent years, the average level of productivity of Belgian workers is among the highest in the world, which may in part reflect the under-representation of low-skill, low productivity jobs. Associated with this, employment levels are low in international comparison, though participation rates are now on a clearly rising trend. Overall, Belgium seems reasonably well placed to reap the benefits of globalisation and to cope with population ageing. But successful adjustment will require policies that in the medium and long term promote continued stronger growth in productivity, while in the short term continue to raise the share of people in work. The authorities have been aware of the need for reforms and their actions have produced visible outcomes: for instance, the consistent achievements of balanced government budgets have led to a sharp reduction of public debt relative to GDP; likewise, the pick-up in job creation has been accompanied by higher labour market participation rates, especially among older workers. The government intends to stay on the course of economic reforms and has accordingly focused its national reform programme on key priorities to achieve long-term sustainable growth prospects, such as creating a more dynamic labour market, consolidating the budget, securing the future of the welfare system and better protecting the environment. More emphasis on strengthening product market competition in a range of sheltered sectors should likewise be a priority. While the present Survey does not encompass all of these priorities, it discusses in detail: i) the overall strategy to deal with the sizeable fiscal consequences of ageing; ii) the labour market reforms undertaken by the government to boost employment gains; iii) the increasing enrolment of new students into tertiary education institutions and related stresses; and iv) the contribution of the financial system to long-term prosperity.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Belgium 2007 is available from:
- SourceOECD for subscribing institutions and many libraries
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OLISnet, under "Publication Locator", for government officials with accounts ( subscribe)
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Additional information
For further information please contact the Belgium Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Jens Hoj, Ekkehard Ernst and Stefaan Ide under the supervision of Patrick Lenain.
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