OECD Economic Outlook, Volume 2025 Issue 1

Belgium

Economic activity is projected to continue to expand at a modest pace, with GDP growth stable at 1.0% in 2025 and 2026. Household consumption remains the primary driver of economic activity but is expected to slow as real income growth moderates. Investment is set to decelerate following robust growth in 2023 and 2024, primarily due to heightened uncertainty surrounding international trade developments. Export growth continues to be subdued, reflecting weakening competitiveness and sluggish external demand. Disinflation is expected to continue, pushing inflation below 2% in 2026.

The fiscal deficit remains substantial, and meaningful fiscal consolidation efforts will only resume in 2026, leaving Belgium unlikely to meet European Union fiscal targets for both 2025 and 2026. The existing tax structure disproportionately relies on labour taxes, negatively affecting employment. Implementing comprehensive tax reforms to broaden the tax base, reduce distortions, and address disincentives to work could significantly enhance potential economic growth. Additionally, reducing administrative burdens, particularly for small businesses, could further stimulate investment.

Growth has moderated

Private consumption strengthened during the second half of 2024, buoyed by robust real disposable income growth in preceding years, but slowed markedly at the beginning of 2025. Public consumption followed a similar pattern. Other growth drivers have been less dynamic. Private investment has been weak, constrained by sluggish exports and subdued residential construction, although both rebounded in early 2025, pushing quarterly GDP growth to 0.4% (non-annualised) in the first quarter of 2025. Export performance has been consistently poor, resulting in the current account returning to a deficit. Changes in US tariff policies and the uncertain international environment have led to sharp falls in business and investor confidence since the end of 2024. Although the labour market remained resilient into early 2025, employment growth slowed significantly compared to previous years. Disinflation trends have persisted, with core inflation easing to 2.3% in April 2025. Headline inflation also declined to just above 3%, down from over 5% in the summer of 2024, driven in part by base effects from earlier increases in tobacco and energy prices.

Belgium

1. Maastricht definition.

Source: OECD Economic Outlook 117 database.

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Belgium: Demand, output and prices

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Belgium, one of the OECD's most open economies, remains highly vulnerable to escalating global trade tensions. While its direct bilateral trade exposure to the new US tariffs on EU goods is limited – with exports to the United States primarily exempt goods like pharmaceuticals and chemicals – its exports would suffer from an ensuing slowdown of its main European partners.

Fiscal consolidation is slow

Automatic indexation bolstered household purchasing power during the post-pandemic inflation surge but also exacerbated fiscal deficits and weakened competitiveness. The transition to a new government has contributed to further delays in advancing fiscal consolidation efforts. Despite an anticipated reduction in the structural primary deficit to 2.4% of potential GDP by 2026 (down from 3.2% in 2024), achieving the EU fiscal targets will likely remain unattainable. The overall fiscal deficit is expected to deteriorate further in 2025 before slightly decreasing to 4.5% in 2026, the same level as in 2024.

Rising uncertainty will weigh on growth prospects

Economic growth is expected to remain below potential. The investment recovery will continue to face headwinds from elevated global trade uncertainty, although residential investment is expected to improve gradually from low levels. Wage growth moderation aimed at restoring competitiveness will result in slower private consumption growth. Export activity will remain weak due to softer external demand, keeping the current account broadly balanced. Consumer prices are expected to decelerate, with core inflation falling below 2% in both 2025 and 2026. Increased European defence expenditures, notably from Germany, may provide a modest boost to exports. Conversely, Belgium might face increased import penetration from China, a risk further aggravated by recent losses in competitiveness.

Bold reforms are needed to address domestic challenges

Effective fiscal consolidation should prioritise enhancing spending efficiency in healthcare and pension systems alongside comprehensive tax reform to shift taxation away from labour towards broader, less distortionary bases. A credible medium-term fiscal strategy featuring multiannual budgeting frameworks and binding expenditure rules at federal and regional levels is essential. Labour market policies should progressively phase out work disincentives and incentivise prolonged employment. Long‑term economic growth would benefit significantly from regulatory simplification and expanded access to lifelong learning. Achieving climate objectives will require stronger incentives for energy efficiency and renewable energy investments. Reducing administrative burdens on small and innovative businesses would further support investment and economic dynamism.