10 warning signs for the Belgian economy

The Belgian economy was able to avoid a recessionary scenario last winter, but that does not mean that all economic concerns are removed. Many of the warning signs for our economy remain in the red.

Last winter, the Belgian economy clearly held up better than previously feared. However, this does not mean that all economic concerns are right behind us, and that our economy is back on track to achieve strong growth. In addition to positive indicators of slowing inflation, falling energy and many raw materials prices, and a strong increase in purchasing power, there are also important warning signs for the coming months.

1. German recession

The German economy went into recession last winter, and there doesn’t seem to be much improvement in the short term. Leading indicators indicate a difficult economic situation. Germany remains our most important trading partner, and in the past economic difficulties in Germany usually meant economic difficulties for us as well.

2. A failed industry

Activity in Belgian industry already fell by 1.3% last year, and our survey of Flemish industrial firms suggests this year will be even more challenging with a contraction of 4% expected.

3. Annoying signs of chemistry

Chemistry is one of our most important industrial sectors, and there are some worrying signs coming from that corner. In the first quarter, capacity utilization in the chemical industry fell to an all-time low. There was some recovery in the second quarter, but capacity utilization in the segment remains low from a historical perspective.

4. Export under pressure

Belgian exports in the first quarter were 3.6% (by volume) lower than a year ago, and this decline accelerated during the quarter. In light of developments in our most important trading partners, the outlook for exports in the coming months is not immediately rosy.

5. The current account is in red

The balance of payments current account, which has been largely positive over the past 35 years, plunged into the red in 2022. The National Bank, Planning Office, European Commission, International Monetary Fund and OECD all assume that our current account will remain negative in the coming years This is painful evidence of our damaged competitive position.

6. Delayed lending

The impact of aggressive interest rate increases by the European Central Bank is becoming progressively more apparent. Clearly, lending is slowing due to higher interest rates in particular. This means that corporate and home investments are increasingly in question.

7. Reducing the number of building permits

The number of new building permits fell 13% in the first quarter from a year earlier. The decline in new construction has been partially offset by an increase in renovations, mainly related to energy efficiency, but construction activity is nonetheless under pressure.

8. Stagnant housing prices

The rise in average home prices has virtually stalled in recent months. Meanwhile, the number of transactions has obviously decreased, and sales times have increased. It is also likely that we are on track in Belgium for average house prices to fall in the coming quarters (in most Anglo-Saxon and Scandinavian countries this is already the case today).

9. Increasing cases of bankruptcy

Since the outbreak of Corona, the number of bankruptcies has clearly increased. This is at least partly compensation after exceptionally few bankruptcies in the Corona years, but of course this can quickly develop into something worse.

10. Unsustainable budget deficit

All together, the Belgian governments are on track to a total budget deficit of €28 billion this year, which is unsustainably high. At some point, efforts will have to be made to bring this deficit back to its limits. These efforts will affect economic activity.

Our economy has done better than expected in recent months, but this is mainly due to growth that has been borrowed from the future through stronger wage increases and large budget deficits. Thus, strong growth in the past few months is no guarantee for the coming quarters. Many of the warning signs for our economy remain in the red. Against this background, the need for policy makers to pay more attention to the situation in the industry and the competitive position of our entire economy also remains high.

Bart van Krenst is chief economist at FOCA and author of Back to the Facts