Belgium: making the future as good as the present
| Author | Rodolfo Luzio |
| Position | IMF European Department |
| Pages | 129-137 |
Page 129
Belgium's economy is in a robust expansion, performing better than the euro area average and well above its long-term trend. Sound public policies, including a declining public debt burden and labor market reforms, underpin the growth. But the population is aging quickly, with significant repercussions for public finances, and global competition is increasing. That means that Belgium must accelerate the pace of both fiscal and labor market reforms to ensure a continuing healthy economy.
Page 136
Belgium's economy is enjoying a robust expansion. Output growth has outpaced the euro area average since 2002 and reached 3 percent in 2006, its fastest pace since the start of the decade and well above its long-term trend. Sound economic policies have underpinned growth. Public finances have been in balance since the beginning of the decade, bringing about an unprecedented decline in the public debt burden (see Chart 1, top panel). Labor market reforms have helped more people find jobs. Nonetheless, the aging of the population and globalization make it increasingly evident that policies need to be strengthened further. With a new government taking office later this year, and a favorable macroeconomic environment, this is a good time to shift the pace of reforms into a higher gear.
Belgium's population is projected to age quickly, with significant repercussions for public finances. By 2050, one out of four citizens will be older than 65, compared with one in six today.
As a result, the total age-related annual public bill will increase by almost 6 percentage points of GDP. At the same time, demographic change will contribute to a gradual drop in employment (only temporarily offset by a rise in female participation), depressing output growth over the long run. By mid-century, every worker would have to contribute 8,100 euros (in today's euros) more annually to fund pensions and health care.
For a small open economy such as Belgium's, globalization provides clear growth opportunities. Larger export markets and cheaper inputs could boost workforce productivity-already among the highest in the world-with hourly labor productivity surpassing that of the United States by about 10 percent. This strong performance reflects the efficiency of the...
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