Why has Belgian private consumption growth been so moderate in recent years?
Belgian household consumption increased only moderately between 2014 and 2018 and more slowly than in neighbouring countries or in the euro area. The more limited growth of private consumption in Belgium is mainly due to a smaller decline in purchases of (durable) consumer goods during the crisis years and to the fact that wage moderation weighed on labour incomes afterwards.
Over the last five years, private consumption growth in Belgium has risen on average by 1% on a yearly basis. This can be considered as rather moderate both from a historical and an international perspective.
During the crisis period, from 2008 to 2013, private consumption growth in Belgium held up relatively well, while it declined significantly in neighbouring countries. The impact of the crisis on Belgian households was somewhat mitigated by the robust labour market and the automatic stabilisers that came into play. As a result, consumer spending categories that are generally very sensitive to income fluctuations, i.e. consumption of durable goods (e.g. vehicles or household appliances) and non-essential purchases (e.g. spending on travel or eating out), continued to grow at a stable pace, which was not the case for the euro area as a whole or the neighbouring countries. As in Belgium, these purchases had fallen less sharply during the crisis, there was also less potential for catching up in the following years.
The moderate growth in consumer spending in recent years cannot be dissociated from the equally limited increase in labour income, which is the main driver of consumption. Over the last few years, fiscal policy has sought to restore Belgian companies’ cost competitiveness, partly through measures limiting income. Despite the fact that this led to strong job creation, the positive effect did not compensate for the low growth in real wages per worker. All in all, wage growth has been significantly slower than in neighbouring countries over the past five years. This could only be partially offset by the measures to support purchasing power put in place by the tax shift: the broader category corresponding to non-financial income also increased to a lesser extent in Belgium compared to neighbouring countries, according to data available up to 2018.
Despite relatively slower growth in recent years, total growth in Belgian household consumption over the past decade has on average been more in line with that of neighbouring countries and of the euro area.