Centralised wage setting in Belgium is holding back productivity growth, according to the National Bank’s annual report.
Following recent measures to get more people into work, the National Bank urged the Belgian Government to focus on boosting slow productivity growth.
The Governor of the National Bank of Belgium called the wage system overly rigid, citing the law that limits wage increases and automatic wage indexation, which sets a minimum threshold for pay rises.
Wunsch argued that businesses need more flexibility to raise wages more significantly in thriving sectors while offering smaller increases in struggling ones. He acknowledged the sensitivity of this issue but stressed its impact on Belgium's economic dynamism.
The report noted that measures targeting unemployed individuals and long-term sick leave are "moving in the right direction," according to Wunsch.
Belgium's economy grew by approximately 1% in 2025, with inflation dropping to 3%. While the unemployment rate remained steady at 6.2%, the employment rate rose to 73.2% — still below the European average and far from the 80% target. The country added 19,000 jobs last year, primarily in self-employment and non-market services, a trend Wunsch labelled as "unsustainable."
Household consumption drove economic growth, followed by business investments — except for the industrial sector — and, to a lesser degree, government spending. Residential investments and net exports contributed negatively to growth for the second consecutive year, highlighting what Wunsch described as "a structural deterioration in Belgium's competitive position."
Although wage costs are less of an issue, the economy's rigid structure limits its ability to adapt to changes like artificial intelligence. Wunsch cited heavier regulations in Belgium as a significant barrier, with 60% of SMEs reporting hindrances from administrative requirements — nearly double the European average.
Belgium's centralised wage system further stifles economic flexibility. Wage inequality is the lowest in the eurozone, limiting labour mobility and slowing transitions between low-productivity and high-productivity roles, companies, or sectors. This also reduces the turnover of unsuccessful businesses and growth among promising start-ups, weakening economic dynamism.
On a European scale, Wunsch pointed out that economic growth is persistently lower in the EU compared to the US. He argued that Europe also lags technologically, with the rise of AI threatening to widen this gap.
The US attracts global talent through a supportive ecosystem, while Europe’s higher risk aversion and overregulation impede progress. Wunsch called for striking a balance between more European integration and less regulation.
