Belgium and the rest of the eurozone enter recession, European Commission expects | Economy

The outlook contrasts with the forecasts made by the Commission last summer. Then she predicted growth in the eurozone of 2.6 percent this year and 1.4 percent next year. So now it is adjusting its growth forecasts for 2022 upwards (thanks mainly to the economic recovery in the first half of the year) and downwards for 2023 by no less than 1.1 percentage points (due to high inflation and the associated economic uncertainty).

Inflation in the eurozone is expected to peak at 8.5 percent this year, before falling in 2023 but remaining at a high level. Consumer prices are expected to rise by 6.1 percent next year, the Commission expects. As inflation continues to eat away at households’ disposable income, economic growth should still be negative in the first quarter of 2023. Only towards the spring, when inflation starts to decline, does the Commission expect positive growth figures again.

As for Belgium, the Commission forecasts economic growth of 2.8 percent this year and 0.2 percent next year. Inflation is expected to peak at 10.4 percent this year and fall to 6.2 percent next year. Just like the entire eurozone, Belgium is therefore also entering a recession, according to the European Commission.

According to the Commission, the Belgian economy will grow by 2.8 percent over the entire year. This has everything to do with a strong first half, the effect of the relaxed corona measures. In the second half of this year, however, high inflation and declining consumer confidence weighed heavily on growth. As a result, growth fell to -0.1 percent in the third quarter. Growth would also be negative in the fourth quarter of -0.4 percent, which means that Belgium is officially entering a recession.

Inflation is “exceptionally high” in Belgium this year at 10.4 percent, the Commission says. High prices for gas and electricity quickly filtered through to other consumer goods, which will continue to rise sharply in 2023. Automatic wage indexation further encourages the price increase. The Commission expects an inflation rate of 6.2 percent for next year. In 2024 inflation should fall to 3.3 percent, as a result of falling energy prices.

By way of comparison: inflation in the entire eurozone is at 8.5 percent this year, a lot lower than in our country. Only five countries record higher price increases, with the three Baltic states as outliers (up to 19.3 percent in Estonia). The Netherlands is struggling with an inflation rate of 11.6 percent, in Germany prices are rising by 8.8 percent, in France by 5.8 percent.

Government measures to mitigate the impact of high energy prices on households and businesses will result in a fiscal deficit of 5.2 percent this year (compared to 5.6 percent last year). Higher expenditures under the automatic indexation of civil servants’ wages and social benefits are only partly offset by the impact of higher wages and purchasing power.

In 2023, the deficit is expected to increase further to 5.8 percent. This is the result of a deteriorating macroeconomic environment, further automatic indexation of civil servants’ wages and benefits, higher interest charges and lower corporate tax revenues due to shrinking profit margins. On a positive note, the phasing out of most energy measures in the first quarter will ease the pressure on public finances.

Not surprisingly, the deficits are also pushing up the debt ratio. According to the Commission, this will increase from 106 percent this year to 108 percent next year and 109 percent in 2024. That year the deficit should fall slightly to 5.1 percent, thanks to an improved economic environment and the expected end of the crisis measures. Finally, the crisis also slows down the labor market. Uncertainty and contracting economic activity will reduce the employment rate growth from 1.8 percent in 2022 to 0.3 percent in 2023. The unemployment rate is expected to rise again from 5.8 percent in 2022 to 6.4 percent in 2023.

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