While the Belgian economy will most likely be able to avoid a recession, the country's budget deficits – due to "unsustainable" public finances – are expected to reach 5% in the coming years, according to the National Bank of Belgium (NBB).
The economy has proved more robust than expected over the past year, mainly thanks to household consumption: growth was still recorded in the third quarter as well, according to the presentation of the National Bank's autumn estimates on Monday.
"Inflation has proved persistent over the past year, rising more sharply than expected, to over 13% in October, mainly due to a surge in gas prices," the NBB said in a press release. "In November, inflation clearly fell for the first time and price pressures are expected to gradually moderate (further) along with the forecasted decline in international energy prices. That being said, uncertainty remains higher than usual."
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Therefore, there is a possibility that the economy may contract slightly in the current quarter (the final quarter of 2022) but that is not certain. In any case, that would be the lowest point, as the National Bank expects economic growth to pick up in the spring of 2023. On an annual basis, there would then be 0.6% growth.
During a press conference, NBB governor Pierre Wunsch reiterated that the state of public finances is unsustainable in the medium term, adding that "there is a risk of a derailment."
The budget deficit is set to remain high in the coming years, rising again from 2023 onwards. Based on a no-policy-change assumption, the deficit is expected to remain close to 5% of GDP in 2025. Public debt is projected to trend upwards.
