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Belgium will enter a recession: causes, consequences, duration… Here is what this implies

  • Post category:Economy News
  • Reading time:4 mins read

Like the euro zone, Belgium will enter into recession at the end of the year. A macroeconomic phenomenon that will have multiple consequences on our economy.

Belgium will enter recession at the end of the year © Belga Image

For the whole of 2022, the Belgian economy will post growth of 2.8% thanks to a good first half and the lifting of measures linked to the coronavirus pandemic, according to the Commission. However, high inflation and declining consumer confidence weighed heavily on growth in the second half. Consequently, it fell to -0.1% in the third quarter and then to -0.4% in the fourth quarter, bringing Belgium into recession.

What is a recession?

A recession is a macroeconomic phenomenon that refers to a slowdown in economic growth and a fall in gross domestic product. For one to speak of a recession, a country must record two consecutive quarters of negative growth.

The causes

The consequences of the war in Ukraine have affected the world economy, and particularly Europe because of its geographical proximity and its heavy dependence on Russian gas. ” The energy crisis is eroding household purchasing power and weighing on production. Confidence indicators have fallen sharply “, says the Commission.

The results

The consequences of an economic recession are multiple and can be long-lasting. First, a recession causes a slowdown in the labor market. According to estimates, the uncertainty and the contraction of economic activity will lower the growth of the employment rate from 1.8% in 2022 to 0.3% in 2023. The unemployment rate would then increase again in Belgium, from 5.8% in 2022 to 6.4% in 2023.

Then, the recession should have a negative impact on the government’s budget deficit and its debt ratio. The government must indeed help households and businesses to face the crisis. Some businesses are already forced to close due to rising energy prices.

This macroeconomic phenomenon is also synonymous with uncertainty and leads to a loss of investor confidence in the economy. There is then a decrease in investments, stock market values, as well as a possible fall in real estate prices.

Read also: The euro below 0.99 dollars: why our currency is at its lowest

During a recession, households also tend to consume less and save more to protect themselves from possible difficulties. A vicious circle then sets in, with production struggling to restart.

A drop in prices?

A recession is often marked by deflation, a general drop in the level of prices, due to the fall in wages and the reduction in consumption that it entails.

But in this case, since the economic recession is linked to the war in Ukraine and the increase in energy prices, two factors that we do not control, it could be that the increase in the key rates of the ECB and the recession do not cause any deflation. We would then find ourselves in a recession accompanied by inflation: a declinflation or Slumpflation.

Read also: ECB raises rates to counter inflation while risking recession

For how long ?

It is difficult to predict when growth will pick up again. ” Uncertainty remains exceptionally high “because of the “unpredictable” evolution of the war, indicates the European Commissioner for the Economy, Paolo Gentiloni.

But according to European Commission forecasts, economic growth will stagnate in the first quarter of 2023 (+0.0%), to pick up slightly from the second quarter. Over the whole of 2023, the Commission forecasts growth for Belgium of 0.2%, which will increase to 1.5% in 2024.