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Belgian economic outlook 2025
After sluggish growth in 2024, the Belgian economy will continue its tame recovery in 2025
The Belgian economy experienced a challenging year in 2024, with sluggish growth, high inflation, and a decline in productivity. The industrial sector faced significant difficulties, and the trade sector contributed little to overall growth. However, our analysis of key growth indicators predominantly points towards a continued tame recovery for Belgium in 2025 as the adverse impact of monetary policy unwinds and inflation eases further. Private consumption is also expected to make a stronger contribution to growth next year.
In 2024, Belgium’s economy is projected to have expanded by a modest 0.9%, marking a deceleration compared to 2023. This slowdown reflects several challenges: business investment remained constrained, while net trade is forecasted to contract by 2.5% in 2024, compounding the significant 16% decline experienced in 2023 within this pivotal component of the economy. On a more positive note, private consumption is beginning to recover, supported by easing inflationary pressures and the gradual fading of the restrictive effects of monetary tightening. Looking ahead, as monetary policy headwinds dissipate and the manufacturing sector approaches a trough, Belgium's economy is expected to maintain its tame recovery trajectory into 2025.
After a special economic boom due to increased vaccine production, industrial output is normalizing
Belgium's industrial production, which surged in 2021 and 2022 on the back of vaccine manufacturing to combat COVID-19, has now settled on a lower plateau. Following a sharp contraction in 2023, the pharma sector rebounded strongly, while chemicals saw modest recovery. However, the automotive and mechanical engineering sectors continued to struggle. Looking ahead, Belgian industry is expected to regain momentum in 2025, supported by a restocking cycle and a broader recovery in the European industrial sector. Industrial production is set to rebound in 2025, with the EU projected to grow by 1.7% and Belgium expected to see a 1.2% increase, signaling recovery after a subdued 2024.
Inflation remains more persistent than anticipated
Inflation rose to 3.2% year-on-year in November, driven by unfavorable base effects. The increase was primarily attributed to higher prices for clothing, household appliances and repairs, holiday accommodations, and food. Additionally, the energy component, consisting of natural gas and electricity, which previously exerted a deflationary influence, turned inflationary, recording a 9.4% rise in November and contributing to the uptick in the headline index. On a positive note, services inflation is showing signs of easing, declining from 4.0% to 3.5% year-on-year. Despite the persistence of sticky underlying inflation components delaying a more aggressive monetary policy easing, the European Central Bank's governing council softened its hawkish stance, cutting rates at its October meeting amid growing concerns over weak growth momentum.
The interest rate turnaround has begun
Both the ECB and the US Federal Reserve have commenced a cycle of monetary easing. The ECB initiated its monetary easing cycle with a 25-basis-point rate cut in June 2024, followed by additional cuts in September, October, December and early January, bringing the central bank rate to 2.9%. Markets expect further rate reductions from the ECB throughout 2025. Meanwhile, the US Federal Reserve initiated its monetary easing policy later, with its first cut in September and following ones in November and December, lowering its benchmark rate to a range of 4.25%–4. 50%. More rate cuts are also anticipated from the Fed in 2025. This substantial divergence in interest rates reflects the differing economic conditions and inflation trends between the two regions. While the eurozone faces sluggish economic growth, the US economy has demonstrated greater resilience, driving the ECB to adopt rate cuts earlier than the Fed.
Inflation & unemployment are expected to decline, both in Belgium and the Eurozone
Economic forecasts suggest a more stable outlook for Belgium and the broader Eurozone, with key indicators pointing towards a stabilizing environment over the coming years. Inflation is set to ease, driven by sharp declines in energy prices and the impact of tighter monetary policy. The unemployment rate is projected to decrease to 5.4% by 2025, suggesting a healthier labor market in comparison to the Eurozone.
We would like to thank Willem Vanlaer, Senior Project Manager at Roland Berger Brussels and core member of the Civil Economics team, for his significant contribution to this report.
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