Belgium’s recovery from the COVID-19 pandemic has been robust thanks to extensive policy support. However, the new shock from the war in Ukraine is exacerbating inﬂation, and supply and labour market shortages, highlighting the importance of boosting the resilience of the Belgian economy. Medium-term ﬁscal sustainability challenges should be addressed by limiting early exit possibilities from the labour market, improving the efﬁciency of public spending, in particular through spending reviews, and boosting the coordination of ﬁscal policies by all levels of government to create room for public investment.
Growth will continue to slow due to heightened uncertainty, but will remain robust at 2.4% in 2022, before falling to 1% in 2023. Domestic demand will be supported by automatic wage indexation, energy support measures and continued growth in employment. The unemployment rate is projected to stay above 6%. Headline inflation will start subsiding through the second half of 2022, but core inflation will remain high over the projection period.
Improving business dynamism will be key to revive productivity growth and job creation in recovery. Reforms are hence needed to lower barriers to entry but also smooth the restructuring of firms and exit of non-viable ones. A more flexible labour market and activation policies will ensure the conditions for productive firms to grow and increase inclusiveness.
©Shutterstock/Anton PetrusRead full country note
2021 Structural Reform Priorities