What's takeaway 1 on Why Belgium’s productivity problem is becoming harder to ignore?

Belgium's productivity growth has fallen to 0.5% annually since 2008, raising significant growth concerns.

What's takeaway 2 on Why Belgium’s productivity problem is becoming harder to ignore?

Underperformance in investment and a shift from high-productivity sectors contribute to stagnation.

What are the market implications for Why Belgium’s productivity problem is becoming harder to ignore?

Traders should monitor the EUR/USD, particularly if Belgium’s productivity trends lead to policy shifts from the European Central Bank. A break below 1.04 could signal increased downward pressure on the euro, while stability above 1.10 may indicate a firmer stance towards recovery.

What are the risks to this view on Why Belgium’s productivity problem is becoming harder to ignore?

Should there be a significant uptick in Belgian productivity or an unexpected rebound in business investments, it could reverse current bearish sentiments towards the euro, pushing it stronger against the dollar. Additionally, any positive surprises from the European economic landscape could undermine this narrative.

Why Belgium’s productivity problem is becoming harder to ignore

What the desk is arguing

Belgium's productivity issues are becoming increasingly relevant to its economic landscape, which could lead to broader ramifications for the Eurozone. The desk notes that productivity growth has drastically fallen since 2008, highlighting a concerning shift that could stall Belgium's economic recovery.

According to the source, Belgium's productivity rose verifiably at 1.2% from 1995 to 2008 but has plummeted to just 0.5% post-crisis. This decline seems strongly tied to stagnation in business investments, which decreased by 4.4% in real terms due to structural challenges.

Where it sits in our coverage

Our consensus target for the EUR/USD is set at 1.075, maintaining a range between 1.04 and 1.12. Notably, jpmorgan forecasts a target of 1.10 for March 2026, while bofa anticipates a lower target of 1.04 for the same period.

This analysis underscores a divergence, as the desk's projection skews towards the higher end of the spread, indicating a belief in potential euro strength despite domestic challenges.

How other firms see it

Firms aligned with the desk's thesis, such as jpmorgan, are highlighting a cautiously optimistic view of the euro amid productivity concerns, while those like bofa express a more pessimistic outlook by forecasting a weaker euro against the dollar.

In addition, attention should be given to the EUR/USD trajectory in relation to potential shifts from the European Central Bank's policy stance, particularly in light of Draghi's assertive comments on productivity's role in sustaining Europe’s growth.

Articles Why Belgium’s productivity problem is becoming harder to ignore 14:09 Belgium Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Belgium’s productivity engine has slowed sharply since 2008. Weaker investment, lower efficiency and a declining share of high-productivity sectors are now weighing on growth, incomes and public finances. With demographics offering less support, Belgium risks remaining stuck with potential growth close to 1% Philippe Ledent Volvo Trucks Centre in Oostakker, Belgium.

Employment has shifted away from highly productive sectors like manufacturing, which has weighed on overall productivity growth Productivity matters In his 2024 report on the future of European competitiveness, Mario Draghi issued a stark warning : “If Europe cannot become more productive , we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model.

We will have to scale back some, if not all, of our ambitions. This is an existential challenge.” Some argue that growth can be traded off against other objectives. Draghi’s point is more pragmatic: without economic growth, Europe will find it harder to preserve welfare, sovereignty and its social model.

Over the long run, economic growth depends on just two drivers: the number of hours worked and the value created in each hour. That makes productivity a defining issue. It accounts for around 70% of the gap that has opened up over the past two decades between GDP per capita in the US and Europe.

Belgium is a useful case study of this wider European challenge. The post-2008 break The picture is clear. Between 1995 and 2008, productivity per hour worked in Belgium rose by 1.2% a year.

Since then, annual growth has fallen to 0.5%. Investment is part of the explanation. Productive business investment rose by 4.4% a year in real terms before 2008, then stagnated between 2008 and 2013.

It briefly recovered from its earlier pace before flattening again between 2020 and 2022. Growth in business investment has since turned positive again, but seemingly at a slower rate. Successive shocks – the financial crisis, the eurozone debt crisis, Covid and the war in Ukraine – seem to have durably weakened the investment cycle, helping to explain the productivity slowdown.

A recent Federal Planning Bureau analysis refines the diagnosis by breaking down productivity gains over the past 25 years. It shows that the contribution of intangible capital per hour worked, such as R&D and software, has increased. Technology-related tangible capital, including IT equipment, has also made a positive, though modest, contribution.

Belgium has therefore benefited from new technologies. But these gains have been more than offset by weaker contributions from other forms of capital, including buildings, infrastructure, machinery and transport equipment. The same analysis points to a sharp slowdown in total factor productivity – the efficiency with which labour and capital are combined.

This has become a major drag on productivity growth. The break observed after 2008 is also broad-based across sectors. Out of 36 sectors excluding real estate, only five (pharmaceuticals, telecommunications, R&D, administrative and support services, and human health activities) recorded faster productivity gains after 2008.

Chart 1. Productivity per hour worked in Belgium (€/hour worked, 1995–2024) Source: NBB; ING calculations "> Source: NBB; ING calculations The sector mix is working against Belgium Sectoral change also matters. Some sectors expand while others decline, and differences in productivity levels affect the economy-wide figure even when productivity is rising within each sector.

In Belgium, this composition effect is negative: activity and employment have tended to shrink in high-productivity sectors and grow in lower-productivity ones. Manufacturing is the clearest example. It remains a high-productivity sector; in 2024, productivity stood at almost €78 per hour worked, compared with less than €59 for the economy as a whole.

Yet over the past 25 years, manufacturing has lost more than 28% of its hours worked, reducing its weight in total employment. According to our calculations, the reallocation of employment across sectors costs Belgium around 0.2 percentage points of productivity growth each year. However, this composition effect does not explain the post-2008 break, as its size was broadly similar before and after that date.

The fiscal cost of weak productivity Weak productivity growth is not an abstract problem. It has direct economic consequences. All else equal, it means weaker growth, slower household income gains, lower corporate profitability and more pressure on public finances.

Slower growth reduces government revenue while making spending pressures harder to manage. One simple illustration compares Belgium’s actual general government deficit with a hypothetical scenario in which: Productivity growth had remained after 2008 on its pre-crisis trend of 1.2% a year. The share of GDP collected through taxes and social contributions would have stayed in line with the actual observed share.

Public spending would have remained at its observed level. This simulation ignores many second-round effects of stronger growth, including inflation or possible tax cuts. It is therefore purely illustrative.

Even with these simplified assumptions, the result is striking: maintaining the previous productivity trend would have removed a large part of Belgium’s current public finance problem. Conversely, weak productivity and weak growth leave governments in a permanent search for either higher revenues or lower spending. Demographics will not rescue growth Weaker productivity growth directly weighs on economic growth.

It can, in principle, be offset by stronger growth in hours worked. The total number of hours worked depends on three factors: growth in the working-age population, labour market participation and average hours worked per person. In Belgium, as elsewhere in Europe, the outlook is not encouraging.

Over the next three years alone, demographics are expected to contribute less than 0.5ppt to GDP growth. All in all, if employment rates, average hours worked and productivity continue to rise at the pace seen over the past two years, potential GDP growth may struggle to exceed 1%. This brings us back to the starting point.

Belgium needs greater political ambition to deliver a durable increase in productivity and safeguard both growth and public finances. The 2024 government agreement included a few ambitions, including the MAKE2030 plan, aimed at halting industrial decline. For now, however, policymakers remain largely in crisis management mode.

That reflects both the repeated shocks hitting the economy and the poor state of public finances. The latest report from the Monitoring Committee, which tracks federal public finances and social security, estimates that a recurring effort of €7.7bn will be needed by 2029 to remain within the budgetary framework set by the European Commission. Coalition parties have been discussing consolidation options for several weeks.

Structural measures to strengthen productivity – for example, by attracting investment into high-productivity sectors – would boost growth and help meet the fiscal objective. But even if such a plan were adopted, it would take time to deliver results. The budgetary challenge, by contrast, is immediate, and is therefore likely to absorb much of the government's attention.

As a consequence, any strong plan supporting productivity is difficult to imagine – and that reinforces the view that Belgium’s potential growth is likely to remain close to 1% in the coming years. Chart 2. Breakdown of potential GDP growth in Belgium, based on trends observed over the past two years Source: Eurostat; ING calculations "> Source: Eurostat; ING calculations Public finances Productivity Belgium Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.

The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Philippe Ledent Senior Economist, Belgium, Luxembourg Philippe Ledent is a Senior Economist at ING Belgium. He’s responsible for economic scenario and structural research on Belgium and Luxembourg.

Philippe also teaches in French and Belgian… In this article Productivity matters The post-2008 break The sector mix is working against Belgium The fiscal cost of weak productivity Demographics will not rescue growth

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