Executive Summary

Strong performer
by EU standards
Belgium, located at the heart of north-western Europe, is a densely populated country of 11.4 million inhabitants. It hosts the headquarters of several supranational institutions (prominently the European Commission, the European Council and NATO) and many multinational corporations. Its economy is generally healthy. With comprehensive road, rail, water and information-technology networks, as well as world-class harbors, Belgium provides direct access between Europe and the rest of the world. The country’s 2018 GDP reached €459 billion (at current prices). In real terms, this represented a 15% increase over 2009 (Eurostat, GDP in chain linked volumes). For comparison purposes, France and the Netherlands registered cumulative GDP growth of 12.8% and 13.5% over the same period, while Germany’s economy grew by 20.7%.
Good economic ratings, with room for growth
Economic performance in the country is generally good, though there are some problems worth noting. The OECD Better Life Index ranks Belgium 15 out of 40 countries, on par with the United States and Luxembourg, and above France, Italy and Japan. Regarding competitiveness, the World Economic Forum ranks Belgium 22 out of 140 countries. The very good, but not best in class global comparisons also apply to education, health, inequality and technological position.
Open, competitive economy
One of the key reasons why Belgium is and will remain competitive is that it has an extremely open economy, with imports and exports totaling 170% of GDP. The top three exporting sectors are chemicals, transport equipment and machinery (Belgian Foreign Trade Agency, 2019). Belgium’s trade openness and high reliance on exports provides a deep commitment, both on the side of corporations and the government, to maintaining competitiveness. A failure to ensure continued competitiveness would place jobs and more broadly the entire economy on the line.
High level of exposure
to global shocks
The downside to an open economy is a higher-than-average exposure to the current wave of global protectionism and to Brexit. While the euro zone is by far the largest market for Belgian exports, its fourth and fifth destinations are the United Kingdom and the United States. Adding to this exposure, Belgium’s competitiveness within the euro zone is at risk, because of an inflation rate that remains (slightly) above the euro zone average. Over the last 10 years, the country’s global export market share fell almost as fast as France’s, while that of Germany increased.
Follower rather
than a leader
Institutional complexities and a lack of entrepreneurial spirit (whether in the for-profit or not-for-profit sectors) imply that the country tends to be in a damage-control mode, rather than pacing ahead of competition. This translates for instance into higher labor costs, limited improvements in environmental policy, slow productivity increases and an education system that is progressively falling behind. The last government, led by Charles Michel, made it a priority to recover some of this lost ground, but with limited success.
Tackling economic challenges
The Michel government ruled from May 2014 to December 2018. Since December 2018, it has operated as a minority government, acting in effect as a caretaker government. The Michel government put these economic challenges front and center of its agenda. The main targets were to decrease labor costs, broaden the tax base, stimulate innovation, create more jobs and accelerate growth. The challenge was daunting, given the need to also reduce the public deficit and debt.
Strong developments
in recent years
The employment rate has increased over the last decade, from 62.4% in 2008 to 64.5% in 2018, with most of this increase occurring in the last five years. The legal retirement age was increased from 65 to 67, and the government introduced the possibility of part-time retirement. The public deficit fell from 3.1% in 2014 to 0.7% in 2018 even though wage and corporate headline rates were reduced. R&D expenditure increased from 2.3% in 2008 to 2.6% in 2017 (latest year available). The number of FDI projects increased by a substantial 40% over four years (Flanders Investment and Trade, 2019).
Governing parties reap little reward
These are impressive and laudable developments. Yet, the May 2019 elections did not reward the parties in government, largely because of internal disagreements, the lack of progress in other policy dimensions (see “Key Challenges”), and doubts concerning the actual impact of the government’s measures in contrast to external conjunctural developments.
Gains are less solid at second glance
The key critique regarding employment is that the EU average employment rate also increased, from 65.7% to 68.6%. In the Netherlands, France and Germany, the employment rates for 2018 were respectively 77.2%, 64.5% and 75.9% (see Bodart et al., 2019). Total revenue from the taxation of corporations did not substantially decrease due to a reduction in tax expenditures – a positive adjustment. Though public finances are expected to deteriorate, because the deficit reduction is partially attributable to temporarily lower interest rates and one-off measures. Finally, while R&D did increase, patenting activity did not. This suggests that some firms reacted to fiscal incentives opportunistically, not only with greater innovative dynamism (see Dumont, 2019).
Shifting political
The political landscape has significantly changed over the last year. In December 2018, the largest party in the federal government, the Flemish NV-A, pulled out. The NV-A’s official reason was the disputed U.N. pact for migration. The signing of the pact was scheduled to happen in Marrakech and was the target of an international populist campaign that proved highly effective. In a bid to position itself ahead of the May 2019 elections, the NV-A announced that it would refuse to sign the pact.
Coalition persists after
loss of member
Nevertheless, the other parties of the coalition government decided to press ahead with the U.N. pact, trying to show in passing how “irresponsible” the NV-A was. Despite handing his resignation to the Belgian king on 18 December 2018, the prime minister helped broker a temporary minority government. In May 2019, regional, federal and European parliament elections were held.
Loss of seats is
Following years of intense opposition from the socialist parties (Flemish and French-speaking), and systematic tensions between Flanders and Wallonia as well as the recent international wave of populism, all parties represented in the previous federal coalition government lost seats in the May 2019 federal elections. The NV-A lost the most seats, to the Flemish extreme right Vlaams Belang. The opposition socialist parties also lost, mainly to the communist PTB*PVDA.
Green parties gaining ground
Another development, unexpected in December 2018, was the strong political involvement of young people in weekly “marches for the climate,” which has brought climate policy to the fore. This has benefited green parties, who were the only mainstream parties to substantially increase their seat share in May 2019.
Forming government
is complicated
These evolutions substantially increased the effective number of parties in parliament, complicating the situation for government formation. At the time of writing, negotiations to form the next government remain under discussion. Polarization also increased within and between the different regional parliaments, with the economically more advanced Flanders shifting to the right and the economically poorer Wallonia shifting strongly to the left, while the greens dominated in Brussels. This has produced three quite different regional government coalitions, which will make it harder for the regional governments to collaborate effectively. In a country in which sub-nationalistic (“separatist”) bigotry has long been present, this divergence poses a significant risk.
Challenges for current, future governments
The long-term challenges for the current and future governments will be fivefold. First, they must increase investment and jobs in ways that benefit all Belgian regions and socioeconomic groups. Second, they must accelerate the environmental sustainability of the economy. Third, they must maintain fair intra- and intergenerational transfers. Fourth, they must accelerate productivity growth and innovation. Fifth, they must better integrate second- and third-generation immigrants. These challenges will require greater concertation, and more fluid collaboration between the political authorities at the national (federal) and subnational levels.
Bodart, Dejemeppe, and Fontenay (2019) “Évolution de l’emploi en Belgique : tentons d’y voir plus clair,” Regards Economiques No 146.

Brys, Yves (2017). “Accrued-to-date pension entitlements in Belgium,” Belgian Federal Planning Bureau Working Paper 6-17.

Dumont, Michel (2019). “Tax incentives for business R&D in Belgium. Third evaluation,” Federal Planning Bureau Working Paper 4-19.

European Commission, DG TAX UD (2019) “Taxation Trends in the European Union”

Flanders Investment and Trade (2019) “Belgium is Europe’s #5 foreign investment destination,”
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