11 JUN

2018

Macro , Asset Class

Belgium: GDP growth keeping up… but real estate prices to remain sluggish

Most economic indicators suggest that Belgium’s growth rate should remain slightly below the Euro area average in 2018 and 2019. Measures implemented to improve competitiveness initially weighed on household consumption. As the negative effects from the wage indexation freeze on private consumption has come to an end and the business cycle is improving, wages should now increase at a slightly more dynamic pace. Consumer spending should therefore pick up slightly and GDP should grow by 1.8% in 2018.

Whereas public finances has also benefited from the improved economic conditions, the public deficit has been lowered more than expected in 2017. Although the government has decided to reduce its efforts in 2018 and 2019, the primary surplus of almost 1.5% in 2017 is nonetheless sufficient to enable the debt-to-GDP ratio to continue to decrease. In the long run, further efforts will have to be made as rising costs due to ageing population will weigh increasingly on public finances. 

Real estate prices will also have to be monitored. Having been underpinned by tax measures to help buyers (tax-deductible mortgage interest payment) and because of the relatively thin supply of new homes (compared to population growth), prices increased much more rapidly than per capita income during the 2000s. This was particularly true for Brussels but also for certain towns in Flanders. Although prices have been slowing down since the crisis, they have not fallen like in many other European countries. As supply is now more in line with demographic dynamics and since certain tax advantages have been scaled back - mortgage interest payment tax-deductibility has been reduced - real estate prices should increase more in-line with income growth.