Belgium will continue to lose more market share than any other mature economy according to the half-yearly economic forecast by the European Commission. “Belgium will be unable to fully benefit from a rebound in the world economy”, the forecast reports, highlighting that this is caused by unit labor costs increasing more in Belgium than in the euro area, mainly as a result of the very low increase in productivity but also because of a significant increase in wages as a result of the automatic indexation.

In addition, Belgian exports are mainly oriented towards other euro-area countries whose imports have been less dynamic than in the rest of the world. Belgium’s product specialization in goods with relatively low technology content has left it less well-placed compared to the eurozone as a whole, since these goods suffer from fierce price competition.

These problems will impact on the Belgian labor market, as the Commission foresees an increase in unemployment from 7 percent in 2008 to 10.3 percent in 2011. High marginal tax rates, long unemployment benefit duration and limited job mobility could even further reduce the already low labor supply on the Belgian labor market.

It seems ironic that while the European Commission acknowledges that Belgium withstood the recession relatively well because of fairly continuous demand from both businesses and consumers, it is nevertheless concerned about the vulnerability of Belgium’s banking sector. Belgian banks have problems accommodating higher credit demand as they are not able to sufficiently improve their solvency position, thus depressing investments.

The economic outlook further reveals that the federal government gross debt will increase up to 104 percent of Belgium’s GDP in 2011, and that the national budget will be in deficit by 5.8 percent over the next two years in spite of economic recovery. According to the European Commission, this indicates that the current trend of continuous expenditure growth under unchanged policy is unsustainable.

AmCham Belgium’s position
The findings of this forecast for Belgium by the European Commission confirm the need for action on the recommendations put forward by AmCham Belgium in the publication Priorities for a Prosperous Belgium. In order to boost employment and stimulate economic growth, it is necessary to take measures that allow for a more flexible labor force.

One of the recommendations put forward is the reform of the automatic wage indexation, which causes employees’ wages to grow following inflation, while not allowing for merit-based compensation. In addition, it increases the salary burden of companies, which is particularly problematic in recessionary times.

Furthermore, measures aimed at achieving national budget savings need to be taken, and developing a lean and efficient government has to be an essential component. This will make public debt more manageable while encouraging more economic activity.