Economic growth is projected to strengthen slowly. A pick-up in private investment will be underpinned by favourable financial conditions and export growth is expected to benefit from stronger growth in Europe. However, household consumption will be held back by ongoing fiscal consolidation and wage restraining measures. Nonetheless, activity should be sufficiently strong to allow a slow decline in unemployment. Inflation is set to tick up as the effects of lower energy prices dissipate.
The government’s fiscal consolidation plan is addressing one of the highest public debt-to-GDP ratios in the European Union, while making the tax burden less growth distortive. If the higher tax burden on consumption and capital were to be undermined by base erosion, the government will need to take corrective measures. The temporary wage restraining measures and tax shift from labour to consumption will promote employment and competitiveness, but need to be accompanied with further reforms of the wage formation process to link wages to domestic productivity. In addition, training measures aimed at vulnerable groups, notably immigrants, could make growth more inclusive.
Belgium has been making progress in reducing greenhouse gas emissions, but housing and transport-related emissions remain high. Reductions of transport subsidies, including the generous tax treatment of company cars, and greater use of road pricing could help to decrease transport related emissions and improve inner-city air quality. The planned phase-out of nuclear power by 2025 calls for substantial investment in low-emission energy generation.