Belgium's Economy in a Nutshell - Economic Outlook of May 2022
Belgium, a small and open economy of almost 11.6 million inhabitants, is located in the heart of Western Europe. In 2021, its GDP reached 507.2 billion euros. The economy benefits from a strong communication infrastructure and a highly qualified workforce. Nevertheless, foreign trade is essential for Belgium. It is also important to note that 62.3% of Belgian exports are directed to the European Union market (United Kingdom excluded). The most significant trade partners for Belgium are its neighbouring countries, namely Germany, France and the Netherlands. After a difficult year in 2020, foreign trade recovered particularly strongly in 2021. However, the trade balance has deteriorated and the deficit reached almost 8.4 billion euros in 2021, compared to a surplus of 1.7 billion euros a year earlier.
In 2021, the products mainly exported by Belgian companies concerned the chemical industries, as well as vehicles and transport equipment, mineral products and finally machinery and electrical equipment.
In 2020, the pharmaceutical industry was the main value added creator within the manufacturing industry, followed by food and beverages and by the chemical industry.
Annual GDP growth recovered strongly in Belgium in 2021 (+6.2%) as a result of the global recovery in economic activity. The rebound of GDP in Belgium was more pronounced than the one in the European Union (27 countries; +5.3%) and in the euro zone (+5.4%). Recent economic developments show that in the fourth quarter of 2021, Belgium saw its GDP increase by 5.7% year-on-year, which is faster than in the previous quarter (+5.1% year-on-year). Only domestic demand excluding inventories contributed to this recovery in GDP. Net exports and changes in inventories, on the other hand, weighed on the recovery in GDP.
Services are usually the main growth driver for the Belgian economy. In 2021, they were also the ones who mostly supported the recovery of economic activity.
The production index in manufacturing industry fell sharply in 2020 to rise again in 2021. The production index for industry excluding construction and that of the energy sector both exceeded their level in 2021. before the crisis, unlike that of construction. Data from the first quarter of 2022 shows a clear recovery in construction.
Business demographics were again strong in 2021, with more business creations than terminations and a net balance of 43,839 units, the largest net balance observed over the 2017-2021 period. Entrepreneurial dynamism is still observed in the first quarter of 2022, with a positive net balance of "creations-terminations" (22,146 units), this balance increased year-on-year by 13,247 units and represents the largest net balance observed since the first quarter of 2017.
Overall, 2021 proved to be a mixed year in the labour market, with the employment rate rising, but both the total and under-25 unemployment rates increasing. In the fourth quarter of 2021 the labour market improved, with all unemployment and employment rates showing a favourable trend within a year of each other. Indeed, the youth unemployment rate rose to 15.5% (from 16.6% a year earlier). The total unemployment rate improved slightly in the fourth quarter of 2021, reaching 5.8% (compared to 6.0% a year earlier). The employment rate increased in the fourth quarter of 2021 to 66.2% (from 64.5% a year earlier).
After a year 2020 marked by a marked slowdown in inflation following, in particular, the collapse of oil prices on the world markets, consumer prices measured by the harmonized index of consumer prices (HICP ) increased during the year 2021 until reaching 9.1% during the first quarter of 2022. All the components of the HICP are bullish but it is the energy component that is pulling prices up . With inflation of 65.9% in the first quarter of 2022, the energy component explains more than two-thirds of total inflation.
With regards to the short-term growth prospects for Belgium, the Federal Planning Bureau indicates that the economic recovery has already taken place in 2021, where growth amounts to 6.1% or even 6.2% according to the latest IMF and European Commission growth prospects.
According to these international institutions, Belgian growth will slow down somewhat in 2022 to around 2.0%. If the consumer price index rises in 2021, the significant growth in energy prices, that has already been observed at the end of 2021 should continue, leading to an estimated rise in inflation of 7.8% in 2022.