Real GDP growth has moderated from its recent robust pace and is likely to slow further towards the country’s potential rate in the short term, though leaving the output gap positive. Domestic demand continues to underpin expansion, boosted by higher employment and real incomes. Inflation is projected to increase somewhat in response to rising cost pressures.
The planned budget surplus is unlikely to materialise in 2007 as the post-election political situation did not allow the implementation of all planned fiscal measures. To meet the medium-term fiscal objectives, the new government will need to implement substantial fiscal consolidation measures, which require expenditure restraint at all levels of governments. Better labour market participation incentives and improved targeting of public employment subsidies to low-income workers are also important to raise employment and improve long-term fiscal trends.
No. 264/265, December 2007-January 2008
• OECD Economic Outlook No. 82, December 2007
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• All OECD Observer articles on Belgium