The European Union, the euro zone and most of the member states will enter a recession during the last quarter of this year. That’s what the European Commission expects, it writes in its new economic growth outlook on Friday. Despite this, economic growth in the euro zone is expected to remain at 3.2 percent throughout 2022, before falling back to 0.3 percent in 2023. As far as Belgium is concerned, the Commission forecasts economic growth of 2.8% this year and 0.2% next year. Inflation would peak at 10.4 percent this year, and fall to 6.2 percent next year.
The outlook is in line with the forecasts made by the Commission last summer. Then she predicted growth in the eurozone of 2.6 percent this year and 1.4 percent next year. Now it is adjusting its growth forecasts upwards for 2022 (mainly thanks to the upturn in the economy in the first half of the year) and downwards for 2023, by no less than 1.1 percentage points (due to high inflation and The Associated economic uncertainty).
Inflation in the eurozone would peak at 8.5 percent this year, to fall in 2023 but remain at a high level. Consumer prices are expected to rise by 6.1% next year. As inflation continues to eat away at families ‘ disposable income, economic growth would still be negative in the first quarter of 2023. Only by spring, when inflation begins to decline, does the Commission again expect positive growth rates.
The situation in our country
As far as Belgium is concerned, the Commission forecasts economic growth of 2.8% this year and 0.2% next year. Inflation would peak at 10.4 percent this year, and fall to 6.2 percent next year. Like the entire eurozone, Belgium is in a recession.
Over the whole of this year, the Belgian economy is still growing by 2.8 percent, according to the Commission. All this has to do with a strong first half of the year, the effect of the relaxed Corona measures. In the second half of this year, however, high inflation and falling consumer confidence weighed heavily on growth. As a result, growth in the third quarter fell to -0.1 percent. Also in the fourth quarter, growth would be negative by -0.4 percent, which means that Belgium officially ends up in a recession.
An ”exceptionally high” inflation
Inflation is “exceptionally high” in Belgium this year at 10.4 percent, the Commission says. The high prices for gas and electricity quickly seeped on to other consumer goods, which will continue to rise sharply in price in 2023. The automatic wage indexation further controls the price increase. For next year, the Commission expects an inflation rate of 6.2 percent. In 2024, inflation should fall to 3.3 percent, due to falling energy prices.
For comparison: inflation in the entire eurozone is 8.5 percent lower this year than in our country. Only five countries record higher price increases, with the three Baltic states as the outliers (up to 19.3 percent in Estonia). The Netherlands is struggling with inflation of 11.6 percent, in Germany prices are rising by 8.8 percent, in France by 5.8 percent.
Budget deficit of 5.2%
Government measures to mitigate the impact of high energy prices on families and businesses will result in a budget deficit of 5.2 percent this year (up from 5.6 percent last year). “The higher expenditure in the context of the automatic indexation of civil servants’ salaries and social benefits is only partially offset by the impact of higher wages and purchasing power,” it said.
In 2023, the deficit would rise further to 5.8 percent. This is the result of a deteriorating macroeconomic environment, the further automatic indexation of civil servants ‘ salaries and benefits, a higher interest burden and a lower corporate tax revenue, due to shrunk profit margins. On a positive note, the phasing-out of most energy measures in the first quarter eases the pressure on public finances.
Not surprisingly, deficits also drive up the debt ratio. This will increase from 106% this year to 108% next year and 109% in 2024. That year, the deficit would fall slightly to 5.1 percent, thanks to an improved economic environment and the expected end of crisis measures. Finally, the crisis is also slowing down the labour market. Uncertainty and shrinking economic activity will reduce employment growth from 1.8 per cent in 2022 to 0.3 per cent in 2023. The unemployment rate would then rise again from 5.8 percent in 2022 to 6.4 percent in 2023.