National Bank does not expect a recession in Belgium: “The bottom has been reached”

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At the beginning of October, the National Bank had forecast a short, shallow recession, with the economy contracting in the third and fourth quarters of this year. But it has since emerged that there was still 0.2 percent growth in the third quarter. That leaves: the fourth quarter. The NBB currently predicts a minimal contraction (-0.1 percent), although macro economist Geert Langenus thinks that a positive adjustment is still possible here as well.

In any case, that would be the bottom: the National Bank expects economic growth to pick up in the spring. That would go from +0.1 percent in the first quarter to +0.4 percent at the end of 2023. The economy would then grow by 0.6 percent for the entire year. In 2024 that would be 1.7 percent and in 2025 1.8 percent.

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The economy has proved more robust than expected over the past year, it was said during a press conference. Business and consumer confidence are nevertheless very low, but according to the National Bank, this is not supported by concrete data such as industrial production and sales in shops. “There is more talk of a slowdown in the economy than a major, deep crisis,” says Langenus.

The economy was mainly supported by household consumption. And it will stay that way, because the indexation of wages – which takes place in January for many people – will significantly increase purchasing power in 2023. Household consumption is therefore expected to remain high. Business investment, on the other hand, would not start to pick up again until the second half of 2023.

The indexation of wages does have consequences for the competitive position of Belgian companies on international markets. Because of the system of automatic indexation in Belgium, wages rise more strongly and faster here than in other countries. For example, the National Bank expects wage costs in Belgium to rise by almost 20 percent by 2025. “This unprecedented strong wage cost increase poses a threat to the cost competitiveness of the Belgian economy,” it says.

“Loss of competitiveness”

Compared to neighboring countries, wage costs in 2022 and 2023 are expected to increase 5.6 percentage points faster in Belgium than in neighboring countries. That difference would decrease again afterwards, to 2.3 percentage points over the period 2022-2025, because wages will rise slightly more in neighboring countries than in our country.

Faster rising wage costs eat away at competitiveness. And that is also reflected in the market shares. In 2023, the companies would lose 2.4 percent market share, after 1.9 percent in 2022, compared to an average of 0.8 percent historically. “The loss of market share is therefore three times faster than in normal circumstances,” says Langenus. Here, too, the decline in market share would slow down in subsequent years.

Pierre Wunsch, the governor of the National Bank, warned of a “continued loss of competitiveness” if inflation did not fall faster in Belgium than in neighboring countries in the coming years. And just around inflation, the forecasts are very uncertain. For the time being, the National Bank assumes that inflation has passed its peak and that it will cool down in the coming years.

The consequences for the labor market are limited. “There are signs that the rapid job creation of 2022 will slow somewhat, but there is no sign that the labor market is about to collapse,” he said. This is partly due to the shortage on the labor market: companies prefer to keep employees on board. The unemployment rate would therefore remain low, roughly speaking at or just above 6 percent of the active population.

Finally, the NBB governor reiterated that the state of public finances is unsustainable in the medium term. “There is a risk of a derailment,” it said. The National Bank expects budget deficits of about 5 percent each time in the coming years – assuming unchanged policy – the government debt would increase to almost 112 percent of gross domestic product in 2025.


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