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OECD Economic Surveys Belgium February 2020

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OECD Economic Surveys Belgium February 2020 OECD Economic Surveys Belgium February 2020 OVERVIEW www.oecd.org/economy/belgium-economic-snapshot/ This Overview is extracted from the Economic Survey of Belgium. The Survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examination of the economic situation of member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. OECD Economic Surveys: Belgium© OECD 2020 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. EXECUTIVE SUMMARY 1 Executive Summary Belgium performs well in many economic and well-being dimensions, but some risks are building up The resilience of public finances should be increased Improving labour market outcomes is key Boosting potential growth requires higher productivity growth 2 EXECUTIVE SUMMARY Belgium performs well in many economic increase vulnerabilities and lower the resilience and well-being dimensions, but some risks of the financial system. are building up Table A. The moderation in growth will continue Moderate and steady economic growth, and 2019 2020 2021 an effective tax and transfer system help to Gross domestic product (GDP) 1.4 1.1 1.1 support good well-being outcomes. Maintaining the reform momentum and Private consumption 1.1 1.4 1.3 addressing rising external and domestic risks will Government consumption 1.9 1.4 1.1 boost the resilience of the Belgian economy. Gross fixed capital formation 3.8 1.7 1.4 Over the past five years, economic growth Exports of goods and services 1.2 0.9 1.2 averaged around 1.7% and was accompanied Imports of goods and services 1.3 1.3 1.5 by strong employment growth (Figure A). GDP growth has slowed since 2018, reflecting Unemployment rate 5.5 5.5 5.5 weaker exports as world trade decelerated. Consumer price index 1.2 1.1 1.5 Nevertheless, robust job creation has led to a fall in the unemployment rate to record low rates, Source: OECD, Economic Outlook (database). also helping the inclusion of low-skilled workers. The resilience of public finances should be Figure A. The recovery has been rich in increased employment creation Rebuilding fiscal buffers should be a priority. Year-on-year % changes The high level of public debt and pressures from 4 population ageing create vulnerabilities. Real GDP Employment 3 The public debt-to-GDP ratio has declined, 2 but remains high at 100%. Recent adjustments 1 have been partly driven by supportive 0 macroeconomic conditions and the temporary -1 effect of the advance payment of corporate taxes, and partly by structural efforts. -2 -3 The composition and efficiency of public 2005 2007 2009 2011 2013 2015 2017 spending can be improved to create space for Source: OECD (2019), OECD Economic Outlook higher public investment. There is room to (database). improve the efficiency of public spending in StatLink2 areas such as health and education. Despite the https://doi.org/10.1787/888934048413 need to reprioritise expenditures, the use of GDP growth is projected to moderate spending reviews is limited. Using spending (Table A), driven by lower business investment reviews and policy evaluation at each level of and a slowdown in exports. Private consumption government would allow a shift in expenditures will be an important driver of growth, supported to more productive uses. by past reductions in labour taxation and robust Shifting the tax mix towards more growth wage growth. Underlying price inflation will friendly sources would boost employment. pick up gradually, due to wage pressures Taxation remains tilted towards labour income, resulting from a tight labour market. which penalises growth and employment. Tax Tighter macroprudential regulation would bases of value-added taxes are narrow with curtail financial system risks. Low interest exemptions and reduced rates, lowering the rates have led to strong mortgage credit growth efficiency of tax collection. In sectors other than and easing of lending standards. Lending with transport, taxation of fossil fuel use is low, which high debt-to-income and loan-to-value ratios can can lower environmental outcomes. EXECUTIVE SUMMARY 3 The pressures on fiscal sustainability will rise technology, signals a need to better align skills due to population ageing. Public spending on with labour market needs and re-skilling. pensions is projected to rise to 15% in 2070 Despite recent increases, the employment rate (Figure B). Recent reforms have improved the remains low (Figure C). Labour market financial sustainability of the pension system. participation is especially low for low-skilled, While the statutory retirement age will increase migrant and older workers. The long-term to 67 by 2030, the effective retirement age unemployed and inactive population face a remains low. Linking the retirement age to life number of employment barriers, which require expectancy could further lower the growth of tailored policies. pension spending, and should be accompanied by measures to re-skill older workers since boosting Figure C. Employment rates are low employment rates will also be key. Per cent of population, 15-64 year-olds, 2019-Q3 Figure B. Public spending on pensions is 90 2006 projected to rise 80 Per cent of GDP, 2070 70 16 60 50 14 2016 40 12 30 10 20 8 10 6 0 4 ITA ESP FRA BEL EA19 OECD GBR DEU SWE NLD 2 Source: OECD (2019), OECD Labour Force 0 SWE NLD GBR ESP EU28 FRA EA19 DEU ITA BEL Statistics (database). StatLink 2 Source: European Commission (2018). https://doi.org/10.1787/888934048451 StatLink 2 https://doi.org/10.1787/888934048432 The targeting of activation measures could be improved further. Existing labour activation The pension system remains complicated, policies are less effective for second-generation with varying schemes for different workers. jobseekers with a non-EU background and the The pension schemes for private and public long-term unemployed. Extending the use of sector workers are separate, with a large tools for the profiling of individualised risks can difference in replacement rates. The rising be a good way to identify job-seekers who are number of self-employed workers could further more at risk of becoming long-term unemployed complicate the system. These workers could and boost their employment. have difficulty meeting the number of career years required to qualify for minimum pensions, Increasing equity of opportunities in which may lead to old-age poverty. Continuing education and training would help improve the integration of pension schemes covering labour market outcomes. Participation in different types of workers, for example through lifelong learning is low (Figure D), especially for a points based system, should be a priority. some disadvantaged groups. Training requirements, which are at the firm level, do not Improving labour market outcomes is key guarantee that workers that need it the most Changes in the nature of work can exacerbate benefit from it. Individual training allowances, existing gaps in labour market outcomes. with guidance support on training programmes, Differences in labour market and education could help. High performance gaps of outcomes according to socio-economic status disadvantaged students suggest the need to target and regions persist. Rising skill shortages, individualised support to students at the risk of especially in information and communication failing. 4 EXECUTIVE SUMMARY Figure D. Participation in lifelong learning is low Figure E. Productivity growth needs a boost Multifactor productivity, index 2000 = 25-64 year-olds¹, % of the population, 100 2018 115 30 BEL DEU FRA NLD 25 110 USA 20 105 15 10 100 5 0 95 ITA DEU BEL ESP EU28 EA19 GBR FRA NLD SWE 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1. Adults participating in education and training in Source: OECD (2020), OECD Productivity the 4 weeks preceding the survey. Statistics (database). Source: Eurostat (2019), Adult learning statistics, StatLink 2 Eurostat Database. https://doi.org/10.1787/888934048489 StatLink 2 https://doi.org/10.1787/888934048470 Public support to R&D investment is high, but better diffusion of innovation is needed. The The current design of the unemployment share of expenditure-based tax incentives in benefit system provides good income support, public innovation has increased, but direct but may discourage job search. Work support can better support long-term research in incentives for low-wage workers, without areas with high potential for spillovers. The reducing the level of income support for the existing R&D tax credit is not immediately unemployed, can be increased via benefits to top refundable, which could lower its effectiveness up wages or lower social security contributions. in targeting young and innovative firms. The system currently provides flat benefits to the long-term unemployed who potentially have High congestion can limit the benefits of different financial needs. To ensure that the long- agglomeration economies and lower term level of support for the unemployed reflects environmental outcomes. One potential household needs more closely, benefits for the correction mechanism would be the introduction long-term unemployed could be means-tested.
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