The alarming rise in debt levels has caught the attention of the OECD, which projects that if no corrective action is taken, Belgium’s public debt may soar to an astonishing 200% of GDP by 2050.
Despite this looming debt crisis, Belgium has shown notable resilience against economic turmoil, with a predicted GDP growth of 1.4% in 2025. However, the OECD emphasizes the urgent need for the country to rein in its mounting debt. Belgium, holding the distinction of being the sixth strongest economy in the EU, has navigated the challenges posed by the Covid-19 pandemic and the energy crisis quite effectively, thanks in large part to robust domestic demand that has balanced out declines in export-driven sectors.
The latest OECD Economic Survey indicates a GDP growth forecast of 1.2% for 2024, down from 1.4% in 2023, followed by a stabilization at 1.4% in 2025 as financial conditions are expected to improve. Inflation trends are also shifting; having dropped significantly, it is expected to reach 4.3% in 2024, up from 2.3% in 2023, before aligning with the Eurozone target of 2% by 2025.
Belgium’s employment landscape has remained positive, with employment growth and a stabilization of unemployment around 5.5%, notably lower than pre-Covid levels. However, the OECD raises concerns about the high fiscal deficit and debt levels, emphasizing the critical need for Belgium to cut public spending. If the current tax and expenditure policies continue unchecked, the public debt could escalate drastically to 200% of GDP by 2050.
Demographic and Climate Challenges Intensify Financial Strain
The OECD report states, “Without consolidation measures, it is projected to grow further due to ageing costs and climate transition pressures,” meaning that demographic shifts and environmental commitments could significantly strain future budgets. Specifically, costs associated with aging—covering areas like pensions and long-term care—are anticipated to surge by 3.7% of GDP by 2060, which is notably higher than the averages seen in other EU member states.
Currently, Belgium’s public debt is projected to reach 107.4% of GDP this year, climbing to 110% in 2025. To counteract these challenges, the OECD suggests improving public spending efficiency and expanding the tax base. However, since Belgium already has one of the highest tax burdens in the OECD, it advocates that consolidation should primarily stem from reducing spending.
Boosting Employment and Supporting SMEs for Economic Expansion
To invigorate economic growth, the OECD urges Belgian policymakers to enhance employment rates, which would subsequently lead to increased economic activity, higher tax revenues, greater consumer spending, and fewer social benefit payouts. As of 2023, only 67% of Belgium’s working-age population was employed, falling short of the OECD average of 70%.
The OECD further recommends measures like restricting early retirement, bolstering in-work benefits for lower-paid employees, and gradually phasing out targeted benefits to facilitate necessary adjustments. Additionally, improving return-to-work initiatives for those on long-term sick leave or disability could foster greater workforce participation.
Support for small and medium-sized enterprises (SMEs) is equally crucial, as these businesses often grapple with administrative burdens and skills shortages that hinder their performance. The OECD advocates for reducing bureaucratic obstacles, enhancing access to training programs, and addressing gender disparities in the workforce to boost SME potential.
Climate Change and Energy Transition: Belgium’s Path Forward
The OECD report underscores that “significant acceleration in emissions reductions” is required for Belgium to meet its climate targets. To navigate the climate and energy transition effectively, Belgium must articulate clear strategies for achieving these goals, gradually increase emission prices where necessary, and enhance its regulatory framework and financial incentives for renewable energy development.
Investment in electrification and energy efficiency is essential, and targeted financial incentives should encourage household improvements in energy use and electrification, particularly in transportation and building renovations.
Global Economic Outlook: OECD Insights
The OECD has also released an interim economic outlook, revealing that many G20 countries have experienced resilient growth. The global GDP is predicted to be 3.2% for both 2024 and 2025. In the US, annual GDP growth is projected to decelerate from 2.6% in 2024 to 1.6% in 2025. Meanwhile, GDP in the Eurozone is forecasted to grow at 0.7% in 2024 and 1.3% in 2025, predominantly driven by consumer spending.
However, the OECD has revised down its growth forecasts for several leading economies within the Eurozone compared to its previous projections from May 2024. The anticipated growth rate for Germany is now 0.1% for 2024, slightly lower than before. For 2025, GDP growth expectations for Germany, France, and Italy are all below earlier estimates, sitting at 1%, 1.2%, and 1.1%, respectively.
Inflation rates are expected to continue their decline, with most G20 nations projected to realign with inflation targets by the end of 2025. The OECD anticipates a decrease from 5.4% inflation in 2024 to 3.3% in 2025, with core inflation in advanced G20 economies dropping to 2.7% in 2024 and further to 2.1% in 2025.
While job market pressures are easing in several economies, including the United States and Canada, unemployment rates have begun to rise in various countries, including South Africa and India.
The OECD warns of ongoing challenges, stating, “As global trade is recovering faster than expected, significant risks remain.” Geopolitical tensions and trade frictions continue to threaten the global economy, which could impair investments and push up import costs. As inflation moderates across major economies, the OECD suggests that monetary policy rate cuts should proceed with caution.
Belgium’s situation mirrors that of other nations, emphasizing the importance of concerted efforts to restrain spending across the board to ensure debt sustainability and maintain fiscal flexibility in the face of future economic shocks.
Photo credit & article inspired by: Euronews
