Friday's updated economic forecasts from the National Bank of Belgium showed it is not a question of will Belgium's public finances worsen, but instead, by how much.
The Bank confirmed that the budget deficit – the gap between government receipts and expenditure – will widen from from 5.2% as a share of GDP in 2025, to 5.3% in 2026, and widening further to 5.7% in 2028. This is a result of the war in Iran driving up energy prices and with it inflation – the key change since the Bank's last forecast in December.
The effect of this is a hit on consumer spending and growth. Philippe Ledent, an economist at ING Belgium, singled the country out as "being at the lower end of the growth range for eurozone economies", with just 0.6% growth this year. Had the hit to growth not occurred, the budget deficit would be 0.5% better this year.
The cost of government borrowing has also been forecast to increase as interest rates creep up to compensate for inflation.
A headache for the federal government
For the federal government, which is currently locked in discussions about how to bring down Belgium's deficit, and with it, the government's debt, the news that their efforts are not having the desired effect, at least on paper, will come as a disappointment.
Ledent told The Brussels Times that this places the government in a difficult situation in terms of how to communicate its message, as ministers are "asking a lot" from the population. "But at the end, if the Bank is right, we won't see any positive effect on public finances," he explained.
According to Ledent, the "situation would have been worse" if the government had not already taken measures.
The government will now have to decide if it wants to overlook the deterioration, or make extra efforts to close the gap. It has already sought to cushion the effects on the public finances by limiting annual wage indexation next year.
Crucially, the Bank has only taken into account decisions already made by the government and has not factored in any additional efforts to close the gap.
"We know that the government will come with a package in order to keep the budget balance on track," said Ledent. "The next update in December from the Bank will show things differently."
The federal government can also take comfort in knowing the European Commission is unlikely to add pressure for extra deficit reduction measures, given the economic crisis is Europe-wide.
However this is not the case for the financial markets ,which will bring their own pressure as Belgium's debt continues to creep up.
Budget Minister David Clarinval (MR) previously flagged his deep concern in an interview with RTL, arguing that "if we do nothing, we risk finding ourselves in a situation that we have experienced in the past of a snowball effect where we have to borrow money to repay our debt. And when you're in that situation, you're in near bankruptcy".
This warning on interest rates was echoed by the Federal Planning Bureau, which issued its own forecasts this week, noting that "interest costs are increasing sharply and a risk of a snowball effect by 2031 cannot be ruled out".
Fixing the roof with the sun not shining
This is the second energy crisis hit Belgium's economy in the last decade, after the first triggered by Russia's full-scale invasion of Ukraine in 2022.
Belgium has history of seeking to implement budget consolidation in an economic downturn. Previous analysis by the Bank shows how expected benefits were dampened by wider economic factors.
While the federal government has been clear at signalling the focus on budget cuts, some effort may be needed to signal where future growth will come from.
The Bank's forward assessment of the Belgian economy is that things will bounce back in the second half of this year, with the effect of energy prices being limited in terms of its impact on long-term growth. That positive assessment requires a significant hope that something unforeseen does not come to throw future forecasts off track.
