Belgium's National Bank expects that inflation – which has skyrocketed to over 8% – will start falling after the summer, which will bring down the cost of living.
The National Bank's biannual report on inflation and growth forecasts for the coming years predicts that inflation should start to fall after the summer, it announced in a press release on Monday.
By the end of 2023, inflation would fall below 2% – which is considered a normal and "safe" inflation rate, simply indicating that the economy is growing at a normal rate. Inflation and the state of the economy go hand in hand, and the National Bank sees the Belgian economy stabilising for a few more months.
A recession or an economic crisis (a shrinking economy) is not on the table for the time being, according to the report. By the end of the year, the economy should pick up again, while inflation will start to decline.
The National Bank calls the sharp rise in energy prices "a major impoverishment for the Belgian economy," but added that many households are largely spared from the worst of it thanks to government measures, as well as the indexation. In recent years, workers and employees have already seen their salaries adjusted several times to the increased cost of living.
Still, not all households are unaffected, as specifically families in the lower middle class are hit particularly hard by the increasing cost of living. These are often people who earn "little," but still "too much" to be eligible for a social tariff for energy, for example.
Additionally, "the sharp increase in labour costs weighs on the competitiveness of companies," the National Bank warned, mainly because unlike Belgium, most countries do not have automatic indexation.
This means that while wages are rising in Belgium, this is not – or not yet – the case in neighbouring countries, giving companies abroad more breathing space, which makes them more competitive.
- Government facing mounting costs of social tariffs due to rising energy prices
- Belgian employers say automatic wage indexation is 'untenable'
- Energy bills starting in May on average €500 cheaper per year in Flanders
The National Bank also hit out at the Federal Government, stating that while the budget deficit is expected to decrease slightly in the coming years, it will be back above 5% of the GDP (market value of all the final goods and services produced in Belgium in a specific time period) by 2024.
This is "worrying," said Governor of the National Bank Pierre Wünsch. "If a recession does occur, we no longer have this situation under control. We do not have the buffers to absorb the next shock. Politicians must stop telling people that the Government can continue to compensate for everything."
This government deficit needs to be addressed "urgently," especially given the rising interest rates, because borrowing is becoming increasingly expensive, the National Bank stressed. A country that can no longer refinance its debts in this way can get into trouble.
The full report can be found here.