Wage moderation policies introduced by the government of Charles Michel have mainly benefited shareholders, and have done little to remedy Belgium’s competitive disadvantage compared to its European neighbours, according to a new report produced by the National Bank of Belgium (NBB).
The report looks at the international situation, and trends such as the shift of the centre of trade gravity towards Asian markets, and a U-turn in the trend towards tariff reductions caused by US trade policy and the uncertainty surrounding the future trading relations with a post-Brexit UK. Such changes mean “it has become harder for exporters to form any clear anticipation about the likely profitability of their activities,” the report says.
Turning to Belgium, the report points out that Belgium’s small domestic economy and relative lack of natural resources make trade essential for the economy, and indeed Belgium comes third among EU member states for the share of trade in GDP, at about 80% behind only Luxembourg and Malta. Germany, by contrast, depends on exports for only 40% of its GDP.
But Belgium’s export growth, about 2.3% in both goods and services, has lagged behind growth in its three main neighbouring countries: France (3%), Germany (3.7%) and the Netherlands (4%).
Belgium’s problem has traditionally been ascribed to high wage costs in the form of social security contributions made by employers, and the relative inflexibility of the labour market in general. Those factors constitute a tax on experts, by making Belgium’s goods and services more expensive than those of its neighbours. The government of Charles Michel took various steps to try to lessen that disadvantage, but rather than bringing down costs, companies appear to have used the savings made to reward shareholders by paying out larger dividends.
“At this stage, it seems that the wage moderation policy introduced in recent years, intended in particular to promote Belgium’s cost competitiveness, has not managed to reverse the trend towards less dynamic exports and, as the corollary to that, to improve Belgium’s export performance,” the report concludes.