Economic growth will slow down in 2016 as fiscal consolidation and wage moderation curb private consumption. In addition, the terrorist attacks in Brussels and Paris in winter have reduced activity, for example in the tourism and restaurant sectors. Activity will gradually accelerate and become more broad-based as firms’ profit margins improve and better financial conditions boost investment. A reform that shifted taxes from earned income to other bases will reduce labour costs and so raise employment. Exports will strengthen as growth picks up in Europe. Inflation will continue to increase, following the rise of indirect taxes in 2016 and as economic slack shrinks.
The commitment to reach a balanced budget in structural terms by 2018 is welcome given the high public debt. However, the automatic stabilisers should be allowed to operate. Fiscal savings can be reached by improving spending efficiency. Better integration of migrants in the labour market and further strengthening the activation of seniors would make growth more inclusive and sustainable.
The decline in labour productivity growth has been more pronounced than in other OECD countries. Promoting ICT industries, improving regulation in network industries and reducing barriers to entrepreneurship could strengthen productivity growth.
Economic Survey of Belgium (survey page)
The Economic Consequences of Brexit: A Taxing Decision (main web page with paper)
Structural reforms in a difficult time (blog + paper)
Public spending efficiency in the OECD (blog + paper)