Economy and Trade
After two millennia of being invaded by various outsiders, from the Romans in the first century BC to the German Reich in 1940, Belgium is very much at the heart of European efforts to ensure a stable, prosperous, and secure European Community (EC). The country has one of the world’s highest per capita GDP (ranked consistently in the top 30), and borders the Netherlands, Germany, Luxembourg, and France. Capitalizing on its central geographic location, Belgium has built a highly developed transport network, and established a well-diversified industrial and commercial base. With few natural resources, Belgium must import substantial quantities of raw materials and export a large volume of manufactures, making its economy unusually dependent on the state of world markets. Roughly three-quarters of its trade is with other EU countries. Belgium regularly outperforms the Eurozone average in terms of growth and economic indicators. The fact that Brussels, the capital of Belgium, is also home to the headquarters of the European Union has attracted a large number of multinationals to establish their European headquarters in Belgium.
Economic Policy over 12 Months
Belgium is fully committed to the Lisbon strategy of focusing on growth and employment, and seeking to make the European Union the world’s most competitive, knowledge-based economy. However, as a December 2008 report by an IMF Mission to Belgium makes clear, the country has been particularly hard hit by the global recession, and the government has had to adopt an interventionist stance, bailing out several major financial institutions, including Fortis and Dexia in late 2008. The political fallout over the problems in Belgium’s financial sector ultimately caused the then prime minister, Yves Leterme, to resign, prompting new elections.
The effects of the deep recession, which took hold in Europe and the United States in the fourth quarter of 2008 particularly, will be felt especially severely in Belgium in 2009, and, in all probability, into 2010, according to the IMF. The boom in energy and commodity prices in early 2008 fueled inflation in Belgium, which peaked some way above the Eurozone average. The government of Belgium foresaw the potential this rise in inflation had to inflict severe damage on the country’s competitive position, yet, at the same time, there was a clear need for a fiscal stimulus package, the effects of which could also be inflationary in the medium term.
Even before the downturn, Belgium faced difficult long-term challenges to solve, including meeting the future costs associated with an ageing population. The country’s dilemma in the existing downturn is to fine-tune policy in such a way as both to stimulate the economy, and to create the minimum possible deficit while so doing. The bigger the deficit, the less scope the country will have to put money aside to pay pensions and healthcare for its ageing population.
The country’s existing fiscal federalism arrangements have been exacerbating imbalances internally. Divided on linguistic lines, the country has had a devolved structure since August 1980, with Flanders managing its affairs, and the Walloon Regional Parliament managing affairs in Wallonia. Further constitutional reform established a separate parliament and government for the German-speaking cantons in 1983, with yet another regional parliament and government for the Brussels Capital Region in 1989. Structural rigidities in the economy, including mandatory wage indexation, are dampening growth and impeding job creation. The recent inflation dynamic in 2008 reawakened debate in Belgium about structural concerns, and that debate continues, although inflation began to fall by the end of 2008, as global commodity prices dropped back.
Economic Performance over 12 Months
Economic growth and foreign direct investment declined in 2008. In 2009, Belgium is likely to encounter negative growth of around −0.75%, increasing unemployment, and a 3% budget deficit, stemming from the world wide banking crisis. The IMF has welcomed a relatively restrained fiscal stimulus package for 2009 proposed by Belgium, calling it “broadly appropriate.” Both regional governments and the national government in Belgium are committed to bringing forward existing investment programs. However, there will be challenges in actually deploying those programs in a timely fashion when they are most needed to stimulate the economy and cushion the downturn. The government hopes that many of its fiscal stimulus initiatives will be temporary, but there are concerns that around four-fifths of the measures it is proposing could widen the deficit in the longer term. Yet as the Belgian government made clear in its own Stability Program proposals in 2008, the country has to bring down its public debt ratio if it is to have any chance of meeting its longer-term commitments to deal with ageing-related expenditure in a sustainable manner. In 2007, the government’s overall debt ratio stood at 84.9% of GDP. The idea was to shrink that deficit to 71.1% of GDP by 2011, but that goal is now looking difficult to achieve.
With exports equivalent to over two-thirds of GDP, Belgium is highly sensitive to fluctuations in international trade. The fall off in demand, caused by a deepening recession in the economies of many of the country’s major trading partners, including the Eurozone, Britain, and the United States, is hitting manufacturing and related service industries hard.
The government remains strongly committed to supporting a diversified economy. Belgium’s industrial and service sectors have to work particularly hard to overcome the disadvantages associated with the country having almost no natural resources. The country’s industrial base includes engineering and metal products, motor vehicle assembly, transportation equipment, scientific instruments, processed food and beverages, chemicals, basic metals, textiles, glass, and petroleum. Industry is concentrated mainly in the populous Flemish area in the north. The services sector is even more important to the country, accounting for some 74.6% of GDP (source: US Department of State). About 78% of Belgium’s trade is with fellow EU member states. Given this high percentage, Belgium continues to seek to diversify, and expand trade opportunities with non-EC countries.
Support for Inward Investment and Imports
Invest in Belgium is the first port of call for potential investors in the country. The Fiscal Department for Foreign Investments (FDFI) provides free, confidential advice.
Tax Exemptions
There is a Tax Shelter program offering fiscal incentives for investors in Belgian or European audiovisual and film works. There are other pro-business tax incentives. Details can be obtained from the FDFI (telephone: +32 (0)257.938.66).
Statistics
GDP growth: 1.5%
GDP per capita: US$38,300
CPI: 4.6% (2008)
Key interest rate: 6.98%
Exchange rate versus dollar: euro per US dollar: 1.325 (April 8, 2009)
Unemployment: 7%
FDI: US$733.9 billion (2008)
Current account deficit/surplus: 80.8% of GDP
Population: 10,403,951
Source: CIA World Factbook except where stated
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