Strongly hit by the COVID-19 crisis, GDP is set to contract by 7.5% in 2020 and recover slowly thereafter. The economy is currently affected by strict containment measures adopted in late 2020. While easing from current levels, such measures are expected to continue to fight sporadic virus outbreaks until a vaccine is rolled out. They will weigh on household consumption, with precautionary saving remaining high in the coming two years. Weak and uncertain growth prospects as well as squeezed profit margins are set to constrain business investment.
Until vaccination becomes widespread, the authorities should enhance effective measures against virus outbreaks, such as testing, tracing and isolating, while strengthening the public health system as planned. They should continue fiscal support, targeting firms directly affected by confinement measures, to avoid unnecessary business failures and extension of support to non-viable businesses. As part of the recovery plan, the new government intends to increase public investment, focusing on the digital agenda and energy transition, which is welcome in order to support the recovery while adapting to new challenges.
The latest OECD Economic Survey of Belgium notes that robust job creation, albeit mostly in low-wage industries, has led to the unemployment rate falling to a historic low. Economic growth has been steady, but remains below average euro area levels, and productivity growth has stagnated. Future reforms should seek to lower employment barriers to disadvantaged groups, help innovative businesses to thrive, and further ease pressures on public finances.