December 8, 2022

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The European Commission expects Belgium and the rest of the eurozone to enter recession |  Economie

The European Commission expects Belgium and the rest of the eurozone to enter recession | Economie

The European Union, the Eurozone and most member states will enter a recession during the last quarter of this year. This is what the European Commission expects, wrote in its new forecast for economic growth on Friday. Despite this, economic growth in the Eurozone is expected to be 3.2 percent over the whole of 2022, before declining to 0.3 percent in 2023. As for Belgium, the Commission expects economic growth of 2.8% this year and 0.2% next year. Inflation is expected to peak at 10.4 percent this year and drop to 6.2 percent next year.

The outlook contrasts with expectations made by the Commission last summer. It then forecast eurozone growth of 2.6 per cent this year and 1.4 per cent next year. So it is now adjusting its growth forecast for 2022 up (thanks mainly to an improved economy in the first half of the year) and downward for 2023, by at least 1.1 percentage points (due to higher inflation and associated economic uncertainty).

Eurozone inflation is expected to peak at 8.5 percent this year, before declining in 2023 but remaining at a high level. The Commission expects consumer prices to rise by 6.1 percent next year. With inflation continuing to erode household disposable income, economic growth should remain negative in the first quarter of 2023. Only in the spring, when inflation begins to decline, will the Commission expect positive growth numbers again.

The situation in our country

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

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According to the Commission, the Belgian economy will grow by 2.8 percent over the entire year. This has to do with the strong first half, the effect of relaxed halo measurements. But in the second half of this year, high inflation and declining consumer confidence significantly affected growth. As a result, growth fell to -0.1% in the third quarter. Growth will also be negative in the last quarter of -0.4 percent, which means that Belgium is officially entering a recession.

Inflation ‘exceptionally high’

The commission says inflation is “exceptionally high” in Belgium this year at 10.4 percent. The high gas and electricity prices quickly passed to other consumer goods, which will continue to rise sharply in 2023. The automatic wage index also encourages price increases. The Commission expects an inflation rate of 6.2 percent for next year. In 2024, the inflation rate should drop to 3.3%, as a result of lower energy prices.

By way of comparison: inflation in the entire eurozone has reached 8.5 percent this year, which is much lower than in our country. Only five countries recorded 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, prices in Germany are rising by 8.8 percent, and in France by 5.8 percent.

Budget deficit 5.2 percent

Government measures to mitigate the impact of higher 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). “The higher spending under the automatic numbering of civil servants’ wages and social benefits is partially offset by the effect of higher wages and purchasing power,” it states.

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In 2023, the deficit is expected to increase to 5.8%. This is a result of the deteriorating macroeconomic environment, continued automatic benchmarking of civil servant wages and benefits, higher interest charges, and lower corporate income tax returns due to shrinking profit margins. On the positive side, the phasing out of most energy measures in the first quarter will ease pressure on public finances.

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

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