OECD Economic Outlook, Volume 2026 Issue 1

Belgium

GDP growth will decrease to 0.7% in 2026 before picking up to 1.1% in 2027. Energy support measures and partial wage indexation will only partly mitigate the negative impact of inflation and fiscal consolidation measures on purchasing power, hurting consumption growth. Headline inflation will increase to 3.5% in 2026 before slowing to 2.6% in 2027. The energy shock and geopolitical tensions will also drag on exports. Potential gas or oil shortages pose a risk for Belgium’s highly fossil-fuel dependent industry. A consolidation strategy that fails to put public debt on a downward path would raise already high interest costs.

Fiscal consolidation is underway, but additional efforts remain necessary to stabilise the high level of public debt and strengthen budgetary coordination across federal and regional governments. Reducing high energy intensity and fossil fuel dependence through a comprehensive energy transition strategy would strengthen energy security and resilience to energy shocks. Lowering administrative burdens and streamlining permitting procedures would foster investment.

Growth has slowed

After a sharp slowdown at the end of 2025, due to weaker external demand and softer household spending, quarterly GDP growth picked up from 0.2% to 0.8% (annualised) in the first quarter of 2026. Wage growth eased and consumer confidence fell to its lowest level since April 2025, while business confidence and export orders remained weak in early 2026. Business investment proved resilient in 2025, but housing investment continued to fall, reaching 16% below its 2019 level. The unemployment rate has stabilised at around 6.4% in recent months. Headline inflation increased to 4.2% in April from 2.2% in March, with energy prices rising by 18.2%. Core inflation has been sticky, at 3.3% in April, on the back of rising services inflation (4.0%) and administrative prices.

Belgium

Source: OECD Economic Outlook 119 database.

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Belgium: Demand, output and prices

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Belgium’s fossil fuel dependence is one of the highest in the EU, making it vulnerable to the evolving conflict in the Middle East via increased energy prices. Fossil-fuel dependent sectors (chemicals, basic metals, agro-food) account for a large share of manufacturing and exports, but rising costs have weakened their price competitiveness in recent years and contributed to weaker export market performance. Around 80% of households have electricity and gas contracts indexed monthly or quarterly, accelerating the pass-through of price increases from wholesale to retail markets. US tariffs have had a limited impact, mainly because of exemptions to pharmaceuticals, Belgium’s main export to the United States, and this situation is expected to persist under the revised tariff regime.

Consolidation will need to be stepped up

Fiscal consolidation is set to start in 2026, following a widening of the primary deficit to 3.4% of GDP in 2025. A structural primary balance improvement of around 0.5% of potential GDP is expected in both 2026 and 2027. Measures to lift labour supply include a cap on unemployment benefits, strengthening incentives to reduce long-term sickness and further increasing effective retirement age. Revenue measures include shifting household excise duties from electricity to fossil fuels, higher securities and bank tax and introducing a capital gains tax. The budget also includes a rise in defence spending, from 1.4% of GDP in 2025 to 1.7% in 2026-27. While the plans comply with EU fiscal rules, they remain insufficient to reduce debt without additional measures.

Targeted three-month measures using windfall energy VAT revenue were decided to support commuters and vulnerable households heating with fossil fuels. The fiscal and the macroeconomic impacts are estimated to be negligible. Automatic indexation of wages to inflation will be limited to earnings below EUR 4000 and social benefits below EUR 2000 to balance safeguarding purchasing power and price competitiveness.

The energy shock will put a drag on growth

GDP growth is projected to slow to 0.7% in 2026 before recovering to 1.1% in 2027. High energy prices will weigh on domestic and external demand, while slower disposable income growth due to capped negotiated wage growth and fiscal consolidation further weakens household consumption. Business investment will decelerate following the energy shock but remain resilient. Labour force and employment will continue to grow, though at a slower pace, supported by policy measures. Headline inflation rises to 3.5% in 2026 before easing to 2.6% in 2027, while core inflation remains more persistent due to wage pressures. Downside risks include potential oil and gas shortages or persistently high energy prices amid prolonged conflict, which would severely affect energy intensive industry and exports. Without additional consolidation measures, high debt servicing costs could increase further and pose macro financial risks. On the upside, the defence industry could benefit from higher domestic and European defence spending if firms manage to scale up production.

Structural reforms are needed to improve resilience

Reducing high public debt requires additional credible medium‑term consolidation measures. Improved spending efficiency, including in the health and long‑term care sectors, stronger budgetary coordination across federal and regional governments, and binding expenditure rules remain essential to ensure fiscal discipline. Lowering energy intensity and fossil‑fuel dependence is critical to safeguard competitiveness and energy security. This requires a clear energy transition strategy, including stronger support for green innovation, a credible carbon‑pricing pathway, and the phase‑out of fossil‑fuel subsidies. Cutting administrative burdens and streamlining permitting procedures would help stimulate investment in renewables.