OECD: Belgium needs to cut public spending to reduce debt and deficit

Belgium has proved relatively resistant to economic shocks and is facing a 1.4% GDP growth in 2025, however, it urgently needs to lower its debt, according to the Organisation for Economic Co-operation and Development (OECD). 

The country with the sixth strongest economy in the EU has emerged from the Covid-19 pandemic and the energy crisis with a promisingly resistant economy, the OECD pointed out, adding that the Belgian GDP was underpinned by strong domestic demand rebalancing the contracting of the export-oriented sectors. 

The latest OECD Economic Survey of Belgium forecasts GDP growth at 1.2% in 2024, down from 1.4% in 2023, and 1.4% in 2025, as financial conditions improve. 

Inflation has declined and is expected to reach 4.3% in 2024, up from 2.3% in 2023, before declining to the eurozone target of 2% in 2025.

Belgian employment has continued to grow and unemployment stabilised around 5.5% which is lower than the average rate in the country before the Covid-19 pandemic. 

However, the fiscal deficit and debt are too high. The OECD highlights that cutting public spending is essential otherwise with the current tax and spending policy, the public debt could mount to 200% of the GDP by 2050.

Ageing and climate transition costs likely to add to pressures

“Without consolidation measures, it is projected to grow further, as ageing costs and climate transition demands put additional pressure on future budgets,” read the report.

Costs relating to ageing, particularly spending on pensions and long-term care, are projected to increase by 3.7% of GDP by 2060, much larger than the average EU country.

Currently, public debt is projected to be 107.4% of the GDP this year and reach 110% in 2025. The report recommends raising public spending efficiency and expanding the tax base, among others. However, the report also highlights that Belgium’s tax burden is among the highest in the OECD, thus consolidation should primarily come from spending cuts.

Increasing employment and supporting SMEs are key to helping the economy grow

One of the key recommendations from the OECD is for Belgian policymakers to encourage higher employment, which yields improved economic activity, more tax, higher consumption and fewer social benefits to pay. 

In 2023, 67% of working-age people in Belgium were in employment, below the OECD average of 70%.

According to the OECD, restricting early retirement, strengthening in-work benefits for low-paid workers as well as gradually withdrawing benefits targeted at them would help carry out the necessary changes. 

They also suggest improving return-to-work programmes for people receiving long-term sickness and disability benefits. 

Meanwhile, small and medium enterprises (SMEs) also need support, their administrative burdens and the skill shortages they face keep a lid on their business performance. The OECD recommends lowering administrative burdens, improving access to training programmes and addressing gender gaps. 

Climate change and energy transition – Belgium is behind in its work

“Achieving climate targets will require a significant acceleration in emissions reductions,” read the report.

To achieve climate and energy transition in due course, the OECD finds that Belgium needs to set out clear plans on how climate targets will be met, gradually increase emission prices where they are low, and improve the regulatory framework and financial support for expanding renewable sources. 

It recommends boosting electrification and energy efficiency with well-targeted financial incentives, to encourage household investment in energy efficiency and electrification, particularly in transportation and building renovations.

OECD: The global economy is on track

The OECD has also published its interim economic outlook, which finds that growth has been relatively robust in many G20 countries.

The global GDP is expected to come at 3.2% in both 2024 and 2025.

Annual GDP growth in the US is projected to slow by sitting at 2.6% in 2024 but falling to 1.6% in 2025. 

GDP in the Eurozone is expected to come in at 0.7% in 2024 and 1.3% in 2025, mainly supported by consumption. 

The OECD lowered its forecast for some of the leading economies in the bloc, compared with its previous outlook, published in May 2024. 

The current report sees the German GDP expanding by 0.1% in 2024, 0.1% less than previously expected. 

For 2025, the GDP of Germany, France and Italy are each expected to come in at 0.1% lower than previously forecast, resulting in GDP growth of 1%, 1.2% and 1.1% respectively. 

Inflation is on track to slow further and be back on target in most G20 countries by the end of 2025. 

Headline inflation is projected to ease from 5.4% in 2024 to 3.3% in 2025 in the G20 economies, with core inflation (inflation without food and energy prices) in the G20 advanced economies easing to 2.7% in 2024 and 2.1% in 2025.

Across the major economies, labour market pressures have continued to ease, the number of job vacancies has fallen from the peak they reached during the pandemic.

Meanwhile, unemployment has risen since the beginning of 2024 in the United States, Canada, Türkiye, India and South Africa, the OECD said.

“As global trade is recovering faster than expected, significant risks remain,” reads the report. 

The geopolitical and trade tensions are still looming over the global economy, with the risk of damaging investment and rising import prices. 

As inflation moderates across the major economies, the OECD believes it is right for the monetary policy rate cuts to continue, with caution.

Belgium is not alone, the report says, explaining stronger efforts to contain spending are welcome across all countries to ensure debt sustainability and preserve room for governments to react to future shocks.