Efforts to reduce Belgium’s budget deficit are likely to weigh on economic growth, with ING Belgium predicting that the country’s growth will fall below the average of the eurozone in the years ahead.
According to ING Belgium’s latest economic and financial outlook, the country faces significant challenges, including the costs of an ageing population, debt interest payments and renewed investment in defence. These factors complicate the task of drafting a multi-annual budget, the bank noted.
The bond market remains sceptical about the government’s ability to restore public finances, ING said, pointing to the spread between Belgian and German bond rates, which reflects expectations of a potential credit rating downgrade. However, the bank considers such a downgrade unlikely this year.
While Belgium’s growth prospects appear dim, the eurozone’s outlook is also subdued. Growth is expected to reach no more than 0.5% in 2023, with only limited acceleration in subsequent years.
Peter Vanden Houte, ING Belgium’s chief economist, warned that without significant productivity gains, demographic trends could reduce potential growth across the bloc to below 1%.
Brighter picture across the Atlantic
In contrast, the United States paints a brighter picture, with robust investments in technology driving productivity improvements. Contributions from artificial intelligence are already becoming evident, and ING Belgium forecasts US economic growth near 2% by 2026.
On inflation, ING noted that it is “not yet fully under control,” driven by lingering second-round effects after the initial inflation spike caused by the energy shock linked to conflict in the Middle East.
The European Central Bank (ECB), which raised interest rates in September 2023, may implement another hike later this year. Chief ECB economist Philip Lane’s comments suggesting estimates for the neutral rate have risen to around 2.5% indicate potential for further tightening, Vanden Houte added.
Financial markets, however, remain largely undeterred. Even the near-closure of the Strait of Hormuz failed to shake stock markets, which are buoyed by strong corporate earnings, particularly among firms active in artificial intelligence and emerging markets.
Despite growing investor interest in companies specialising in artificial intelligence, ING Belgium dismissed concerns of a potential bubble in the sector for now, stating they are “unfounded at this stage.”
