Although invariably strongly influenced by international factors, economic activity in Belgium has clearly remained more robust than in the euro area in 2018. In a context of persistently weak external demand and sustained uncertainty, growth is projected to contract only slightly, coming down from 1.4 % in 2018 to 1.2 % this year. In 2020 and 2021, the Belgian economy is expected to expand at a more or less stable pace of 1.1 % and 1.2 % respectively. The overall downward revision of forecasts for 2019-2021 compared with the autumn projections is still very limited relative to those established for the euro area as a whole and is entirely attributable to the lower-than-expected growth in international trade.

Masked by the almost constant growth anticipated over the projection period, certain demand components are developing in opposite directions. Private consumption should gain strength, as a result of the rise in purchasing power. On the other hand, economic growth will be gradually less supported by business investments, which should moderate further in line with their usual cycle. Moreover, the contribution to growth from net exports is projected to gradually become more negative, as the rise in imports gains momentum – driven by the expansion of domestic demand –, while export growth is expected to stagnate. Relevant export markets for Belgium, as defined in the Eurosystem common assumptions, are projected to pick up again by the end of a sluggish first half of 2019. However, export market shares are likely to once again contract somewhat over the projection period, as domestically generated wage cost pressure gets stronger.

Some 120 000 extra jobs are expected to be created during the projection period. Employment growth, which remains highly vigorous, should nevertheless gradually run out of steam due to the waning impact of the wage moderation policy and labour-supply-boosting measures as well as due to existing tightness in some segments of the labour market. In this respect, economic activity will increasingly be supported by productivity gains. The harmonised unemployment rate has now fallen back to an all-time low. It is expected to stabilise in the next few years, with the expansion of the working population growing in line with that of job creation.

Underlying inflation is precited to steadily rise towards 2 %, in line with the increase in wage costs. However, these will not be passed fully onto prices, but should also moderate corporate profit margins, as already observed in the past. Profit margins have widened considerably over the last few years but are projected to gradually return to their long-term average over the projection period. Headline inflation is expected to be driven by underlying inflation, but at the same time, it should be compressed by the slowdown in energy prices.

As regards public finances, the budget deficit is likely to systematically deteriorate further if there is no change of policy, to reach 2.1 % of GDP in 2021. That can be explained by a drop in public revenues, while primary expenditures increase moderately and interest charges decrease further. The national debt is predicted to come down but should still be higher than GDP in 2021.