According to the National Bank of Belgium’s spring projections, that were published today, the Belgian economy is set to temporarily lose momentum.

The war in Ukraine and the strict coronavirus lockdowns in China have disrupted global supply chains again and prices of various inputs, not least energy, have risen sharply. The energy shock is a clear setback for the Belgian economy, but it remains resilient. Economic growth is forecast to gather pace again from the end of this year, as the various headwinds moderate.

Inflation turned out tenacious and rose to just under 10% in May. Thanks to the assumed moderation of cost pressure from abroad and in the absence of a strong domestic wage-price spiral, inflation should fall gradually, coming back down under 2% in the autumn of 2023, even though there is a lot more uncertainty than normal.

In the meantime, feeding through via the indexation mechanism, the high prices will admittedly have a big impact on wage costs, which are projected to increase by around 14% by the year 2024. This unprecedentedly strong rise in wage costs is threatening the Belgian economy’s cost competitiveness.

And finally, the budget deficit looks set to remain unsustainably high in the next few years and, if there is no change in policy, is forecast to rise to 5 % of GDP in 2024. Government debt is on a rising path.