Economy of Belgium

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Economy of Belgium
Currency	1 Euro = 100 eurocent
Fiscal year	Calendar year
Trade organisations	EU, WTO and OECD
Statistics [1]
GDP ranking	32nd (2005) [2]
GDP	$325 billion (2005)
GDP growth	1.5% (2005)
GDP per capita	$31,400 (2005)
GDP by sector	agriculture (1%), industry (24%), services (74.9%) (2004)
Inflation	2.8% (2005)
Pop below poverty line	4% (1989)
Labour force	4.77m (2005)
Labour force by occupation	services (74.2%), industry (24.5%), agriculture (1.3%) (2003)
Unemployment	8.4% (2005)
Main industries	engineering and metal products, motor vehicle assembly, processed food and beverages, chemicals, basic metals, textiles, glass, petroleum
Trading partners [3]
Exports	$269.6 billion f.o.b (2005)
Main partners	Germany 19.4%, France 17.3%, Netherlands 11.7%, United Kingdom 8.2%, United States 6.4%, Italy 5.3%(2005)
Imports	$264.5 billion f.o.b. (2005)
Main partners	Netherlands 17.8%, Germany 17.2%, France 11.4%, United Kingdom 6.8%, Ireland 6.5%, United States 5.4% (2005)
Public finances [4]
Public debt	€ 279.9 bn (94.3 % of GDP)(2005)
External debt	$28.3bn (1999)
Revenues	$180.4 billion (2005)
Expenses	$180.5 billion (2005)
Economic aid	$1.072bn (2002)
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Belgium, a highly developed market economy, belongs to the Organisation for Economic Co-operation and Development (OECD), a group of leading industrialized democracies. In recent years, with a geographic area of 30,528 km² (ranked 148th in the world), and a population of just over 10 million, Belgium's GDP level has placed it in the top 20 for all countries of the world. In 2004, the per capita income was $29,100.

Densely populated Belgium is located at the heart of one of the world's most highly industrialized regions. The first country to undergo an industrial revolution on the Continent of Europe in the early 1800s, Belgium developed an excellent transportation infrastructure of ports, canals, railways, and highways to integrate its industry with that of its neighbours. One of the founding members of the European Community (EC), Belgium strongly supports deepening the powers of the EC to integrate European economies. Belgium became a first-tier member of the Economic and Monetary Union of the European Union in January 1999.

With exports equivalent to about two-thirds of GNP, Belgium depends heavily on world trade. Belgium exports twice as much per capita as Germany and five times as much as Japan. Belgium's trade advantages are derived from its central geographic location, and a highly skilled, multilingual, and productive work force.

The Belgian industrial sector can be compared to a complex processing machine: It imports raw materials and semi finished goods that are further processed and re-exported. Except for its coal, which is no longer economical to exploit, Belgium has virtually no natural resources. Nonetheless, most traditional industrial sectors are represented in the economy, including steel, textiles, refining, chemicals, food processing, pharmaceuticals, automobiles, electronics, and machinery fabrication. Despite the heavy industrial component, services account for 72.5% of GDP. Agriculture accounts for only 1.4% of the GDP.

1 Belgian economy in the twentieth century
2 Regional differences
3 Foreign investment
4 Monetary
5 Trade
6 Employment
7 Budget
8 Overview
9 References
10 See also

[edit] Belgian economy in the twentieth century

For 200 years through World War I, French-speaking Wallonia was a technically advanced, industrial region, while Dutch-speaking Flanders was predominantly agricultural. This disparity began to fade during the interwar period. When Belgium emerged from World War II with its industrial infrastructure relatively undamaged, the stage was set for a period of rapid development, particularly in Flanders. The postwar boom years, enhanced by the establishment of the EU and NATO headquarters in Brussels, contributed to the rapid expansion of light industry throughout most of Flanders, particularly along a corridor stretching between Brussels and Antwerp (now the second-largest port in Europe after Rotterdam), where a major concentration of petrochemical industries developed.

The older, traditional industries of Wallonia, particularly steelmaking, began to lose their competitive edge during this period, but the general growth of world prosperity masked this deterioration until the 1973 and 1979 oil price shocks and resultant shifts in international demand sent the economy into a period of prolonged recession. In the 1980s and 1990s, the economic center of the country continued to shift northwards to Flanders.

The early 1980s saw the country facing a difficult period of structural adjustment caused by declining demand for its traditional products, deteriorating economic performance, and neglected structural reform. Consequently, the 1980-82 recession shook Belgium to the core--unemployment mounted, social welfare costs increased, personal debt soared, the government deficit climbed to 13% of GDP, and the national debt, although mostly held domestically, mushroomed.

Against this grim backdrop, in 1982, Prime Minister Martens' center-right coalition government formulated an economic recovery program to promote export-led growth by enhancing the competitiveness of Belgium's export industries through an 8.5% devaluation. Economic growth rose from 2% in 1984 to a peak of 4% in 1989. In May 1990, the government linked the franc to the German mark, primarily through closely tracking German interest rates. Consequently, as German interest rates rose after 1990, Belgian rates have increased and contributed to a decline in the economic growth rate.

In 1992-93, the Belgian economy suffered the worst recession since World War II, with the real GDP declining 1.7% in 1993. Growth improved in 1999, with real GDP growing by an estimated 2.2% (year-on-year) versus the 2% figure recorded in 1998. Business investment (up 4.0% in real terms) and exports (up 4.4%) provided the economy's impetus. Private consumption, held back by weak consumer confidence and stagnant real wages, grew by 1% in real terms and public consumption by 0.9%.

[edit] Regional differences

An in-depth analysis of Belgian economy must also mention the main differences between the two Belgian regions. As a matter of fact (cfr. statistics from Eurostat and OECD), Flemish economy is quite different from the Walloon economy. The two main economic cities of the country, Brussels and Antwerp, are also very different and both have some particular strengths.

[edit] Flemish and Walloon economy:

Productivity is +/- 20% higher per inhabitant in Flanders then in Wallonia (difference per person employed being lower as the percentage of persons employed is lower in Wallonia, see also further below);
Flanders managed to attract more, and more diversified investments from multinationals while Walloon economy relied more on heavy industry, and suffered more from the worldwide move away from it. Nowadays, Wallonia appears to be catching up to a certain extent in foreign direct investment level.
Wallonia has roughly three-quarters as many public servants per 1000 employees, compared with European union averages; Flanders sits roughly one-quarter above the EU average;
Unionisation is very strong in both regions since the last statistics. Left-leaning, confrontationalist (socialist FGTB) is stronger in Wallonia, where the more conciliatory Christian-Democratic unions (ACV) dominate in Flanders;
Flemish economy has a higher spending in research and development (one the goals of the European Lisbon Strategy), mainly through a higher private R&D spending, but also thanks to higher public R&D spending of the Flemish authorities;
It is estimated that the Flemish economy supports the Walloon economy by transferring more than 10 billion EUR annually. Economists suspect that these transfers do the Walloon economy more harm than good, undermining its competivity and efficiency (and thus causes unemployement);
Unemployment remained consistently more than twice as high in Wallonia than in Flanders, and even more in Brussels, during most of the last 20 years (November 2005, Flanders: 8,3%; Wallonia: 18.6% and Brussels: 22.0% [5])
Language skills and general education level are considerably better in Flanders; recent international studies position Flemish education in OECD or EU top quarter, versus bottom quarter for education in the French-speaking community (education being a Community competence and not a federal competence);
The whole country, especially large economic centers like Antwerp, Brussels or Liège, suffers from persistent shortages for many skilled or highly skilled functions.
GDP per capita differs between the two regions. While the GDP per capita (PPP) was in 2004 27.356 euro in Flanders, it was 19.858 euro in Wallonia (or about three-fourths of Flanders'). This gap tends to gradually increase as the Flemish economy grows faster than the Wallonian. Moreover the GDP per capita of Wallonia is artificially kept high by substantial fiscal transfers from Flanders to Wallonia. [6]. Recently, the difference in growth rates declined, although Wallonia appears to be lagging behind still. ^{[citation needed]}

[edit] Brussels

Being the de facto European capital, its economy is massively service-oriented. It is heavily dominated by regional headquarters of multinationals, by European institutions, by the still heavily (over)populated Belgian administrations, and by related services. Brussels also has more commuters coming mainly from Flanders, closely followed by commuters from Wallonia (and far smaller numbers of commuters from the Netherlands and France), then local employment. Within Brussels, the unemployment rate is higher than in the other Belgian regions (currently above 20%). This is mainly explained by a combination of:

higher taxation rates than in Flanders and Wallonia
a high percentage of mono-lingual French-speakers (Flemings in Brussels generally speak two languages or more), combined with mismatch between education and labour market needs (tellingly the Brussels-based VW car manufacturing plant found only 7% of its latest new employees in the Brussels region, mainly because of sheer absence of technically trained people in Brussels);
a high percentage of immigrants (>25%) with an average education level far below that of native Belgians;
local political institutions showing sub-standard performance (somewhat 'boxing above their weight' compared especially with Flemish institutions).

Nevertheless, the international role of Brussels provides Belgium with unique opportunities for economic growth. Private companies and international experts stress that improvements can be made (and quite rapidly) by much better education / retraining of the unemployed (both in technical as in language skills), by slimming down public bureaucracy and regulations, and through significantly better cooperation with Flemish and Walloon authorities.

[edit] Antwerp

The Antwerp agglomeration is the biggest economic centre of Belgium, and way before the other centers. Its economy relies on:

its port (second largest European sea port by cargo volume [2004]^[1] ) and related transport activities (the Antwerp freight railway station accounts for one-third of Belgian freight traffic);
diamond trade (and to a much lesser and decreasing extent, diamond processing): Antwerp is the first diamond market in the world; diamond exports account for roughly 1/10th of Belgian exports;
chemical industry: the Antwerp-based BASF plant is the largest BASF-base outside Germany, and accounts on its own for +/- 2% of Belgian exports;
diversified industrial and service activities: car manufacturing, telecommunications, photographic products, ....

Recent stagnation on economy appears related with a rather undynamic and unstable city government, expensive local public administration, rather high taxation by local and Belgian authorities (compared with competing centres abroad) and by relatively low innovation in several sectors.

[edit] Foreign investment

Foreign investment contributed significantly to Belgian economic growth in the 1960s. In particular, U.S. firms played a leading role in the expansion of light industrial and petrochemical industries in the 1960s and 1970s. The Belgian Government encourages new foreign investment as a means to promote employment. With regional devolution, Flanders, Brussels, and Wallonia are now courting potential foreign investors and offer a host of incentives and benefits.

More than 1,200 U.S. firms had invested a total of over $20 billion (20 G$) in Belgium by 1999. U.S. and other foreign companies in Belgium account for approximately 11% of the total work force, with the U.S. share at about 5%. U.S. companies are heavily represented in chemical, automotive assembly, and petroleum refining. A number of U.S. service industries followed in the wake of these investments--banks, law firms, public relations, accounting and executive search firms. The resident American community in Belgium now exceeds 20,000. Attracted by the EU 1992 single-market program, many U.S. law firms and lawyers have settled in Brussels since 1989. Other foreign firms, particularly French ones, have invested locally for the same reason.

[edit] Monetary

Main article: Euro

On May 1, 1998, Belgium became a first-tier member of the Economic and Monetary Union. On January 1, 1999, the definitive exchange rate between the Euro and the BEF was established at BEF 40.3399. Belgium then gradually shifted from the use of the BEF to the use of the Euro as its currency by January 1, 2002. To minimize confusion the old BEF currency and the new Euro overlapped for a period of 2 months. After that, the BEF was withdrawn from circulation and can now only be changed into Euros at the local offices of the National Bank of Belgium.

[edit] Trade

About 80% of Belgium's trade is with fellow EC member states. Given this high percentage, it seeks to diversify and expand trade opportunities with non-EC countries. Belgium ranks as the 10th-largest market for the export of U.S. goods and services. If goods in transit to other European countries are excluded, Belgium still ranks as the 12th-largest market for U.S. goods.

Bilaterally, there are few points of friction with the U.S. in the trade and economic area. The Belgian authorities are, as a rule, anti-protectionist and try to maintain a hospitable and open trade and investment climate. The U.S. Government focuses its market-opening efforts on the EC Commission and larger EC member states. In addition, the EC Commission negotiates on trade issues for all member states, which, in turn lessens bilateral trade disputes with Belgium.

[edit] Employment

The social security system, which expanded rapidly during the prosperous 1950s and 1960s, has numerous programs, including a medical system, unemployment insurance coverage, child allowances, invalid benefits and other benefits and pensions. With the onset of a recession in the 1970s, this system became an increasing burden on the economy and accounted for much of the government budget deficits. Unemployment, which declined from a high of 14.3% in 1984 to an average of 8.5% in 1999, has become less of a problem recently. However, more than 60% of the unemployed have been so for over 2 years and over 80% for at least one year.

The national unemployment figures mask considerable differences between Flanders and Wallonia. Unemployment in Wallonia is mainly structural, while in Flanders it is cyclical. Flanders' unemployment level equals only half that of Wallonia. For many years, sunset industries (mainly coal and steel) dominated in Wallonia and sunrise industries (chemicals, high-tech, and services) in Flanders. Nowadays, many new investments (in transportation (Charleroi and Liège airport), computer and biotechnology industry, spacial and Aeronautic) is slowly changing the industrial landscape and employment rate in Wallonia. The steel industry in Wallonia was so important that its fade-out is almost canceling the benefits of the new investments. This is a one time operation though.

From the second half of 1999 onward, Belgian unemployment figures declined substantially to 8.5%, one percentage point below the European average. Labour market participation also increased significantly from 54% in 1993 to 58.5% in 2000. In some sectors, labour shortages are already beginning to appear. To partly offset the increased labour costs which go with a tight labour market, the Belgian Government introduced stock option legislation for salaried employees in 1999.

[edit] Budget

Although Belgium is a wealthy country, it overspent income and under-collected taxes for years. The Belgian Government reacted with poor macroeconomic policies to the 1973 and 1979 oil price hikes: it hired the redundant work force into the public sector and subsidized ailing industries--coal, steel, textiles, glass, and shipbuilding--in order to prop up the economy. As a result, cumulative government debt reached 121% by the end of the 1980s (versus a cumulative U.S. federal public debt/GNP ration of 31.2% in 1990). However, thanks to Belgium's high personal savings rate, the Belgian Government managed to finance the deficit from mainly domestic savings, which minimized the deleterious effects on the overall economy.

Two of the five criteria for membership into the first-tier group of the Economic and Monetary Union of the European Union (EMU) under the Maastricht treaty (1992) were to attain a budget deficit of 3%, and an accumulated debt percentage of 60% of the GDP. In 1992, Belgium had a 7,1% budget deficit that brought the accumulated debt to 137,9% of its GDP in 1993, its highest level ever. It soon became clear that Belgium could not attain the 60% accumulated debt percentage goal. Nevertheless, Belgium was allowed membership on condition that it made "substantial progress" on its debt problems. This became the main objective of Belgian Government economic policy, and was able to bring down the (annual) budget deficit in 1999 (federal, regional plus social security) back to 1.2% of GDP. This represented a substantial decrease from the 7.1% deficit recorded in 1992, as well as a significant difference from the expected figure of 2%, well within the Maastricht criterion.

After Belgium gained this membership, it continued this policy, bringing the accumulated debt percentage in 2005 to 94.3% of GDP. PDF

[edit] Overview

Evolution of the Belgian GDP

This modern private enterprise economy has capitalized on its central geographic location, highly developed transport network, and diversified industrial and commercial base. Industry is concentrated mainly in the populous Flemish area in the north, around Brussels and in the 2 biggest Walloon cities : Liège and Charleroi. With few natural resources, Belgium must import substantial quantities of raw materials and export a large volume of manufactures, making its economy unusually dependent on the state of world markets. About three-quarters of its trade is with other EU countries. Belgium's public debt fell from 127% of GDP in 1996 to 122% of GDP in 1998 and in 2005, stood at 94.3% of GDP, as the government is trying to control its expenditures to bring the figure more into line with other industrialized countries. Belgium became a charter member of the Economic and Monetary Union (EMU) in January 1999. The dioxin crisis - beginning in June 1999 with the discovery of a cancer-causing substance in animal feed - constituted a serious blow to the food-processing industry, both domestically and internationally. This crisis slowed down GDP growth with recovery expected in the year 2000.

GDP Growth rate and GDP in PPP for Selected years (2002 - 2006 est.)

Year	GDP in billions of USD PPP	% GDP Growth
2002	286.239	0.9
2003	294.663	1.3
2004	309.011	2.7
2005	324.299	1.2
2006	338.130	2.0

Industrial production growth rate: 3.5% (2004 est.)

Electricity:

production: 76.58 TWh (2002)
consumption: 78.82 TWh (2002)
export: 9.1 TWh (2002)
import: 16.7 TWh (2002)

Electricity - production by source:

fossil fuel: 38.4%
hydro: 0.6%
nuclear: 59.3%
other: 1.8% (2001)

Agriculture - products: sugar beets, fresh vegetables, fruits, grain, tobacco; beef, veal, pork, milk

Exports - commodities ^[2] :

Cars (incl. station wagon): 23,301.3 (US$ millions) - 10% of Belgian exports (2003)
Medicament mixtures put in dosage: 20,426.1 (US$ millions) - 8.8% of Belgian exports (2003)
Diamonds, not mounted or set: 10,213.4 (US$ millions) - 4.4% of Belgian exports (2003)
Heterocyclic compounds with nitrogen heteroatom; nucleic acids & their salts: 7,546.0 (US$ millions) - 3.2% of Belgian exports (2003)
Petroleum oils, not crude: 6,164.4 (US$ millions) - 2.6% of Belgian exports (2003)
Parts & access of motor vehicles: 4,411.2 (US$ millions) - 1.9% of Belgian exports (2003)
Automatic data processing machines;optical reader: 3,225.5 (US$ millions) - 1.4% of Belgian exports (2003)
Petroleum gases: 3,112.5 (US$ millions) - 1.3% of Belgian exports (2003)

Imports - commodities: machinery and equipment, chemicals, diamonds, pharmaceuticals, foodstuffs, transportation equipment, oil products

Exports - partners: Germany 19.4%, France 17.3%, Netherlands 11.7%, United Kingdom 8.2%, United States 6.4%, Italy 5.3% (2005)

Imports - partners: Netherlands 17.8%, Germany 17.2%, France 11.4%, United Kingdom 6.8%, Ireland 6.5%, United States 5.4% (2005)

Currency: 1 Euro (€) = 100 cents (Pre-1999: 1 Belgian franc (BF) = 100 centimes)

Exchange rates: euros per US dollar - 0.8054 (2004), 0.886 (2003), 1.0626 (2002), 1.1175 (2001), 1.0854 (2000), 0.9386 (1999)

note: on 1 January 1999, the European Monetary Union introduced the euro as a common currency to be used by financial institutions of member countries; on 1 January 2002, the euro became the sole currency for everyday transactions within the 12 member countries.

Fiscal year: calendar year

[edit] References

This article contains material from the CIA World Factbook which, as a US government publication, is in the public domain. 2005
This article contains material from the US Department of State's Background Notes which, as a US government publication, is in the public domain. 2003