National Bank sees no room for higher wages in the next three years

Our wages are still rising faster than in neighboring countries. Compared to previous forecasts, wage costs in Belgium are increasing by an extra percentage point, according to the NBB. This is due to our system of automatic indexation, which means that our wages are automatically adjusted to the lifespan.

The culprit of this higher indexed and therefore increasing wage cost is, among other things, the more expensive service vouchers, especially in Flanders. “A fifth of the higher than expected wage costs are the result of more expensive service vouchers. Even if they only become one euro more expensive, the effect is significant,” explains Geert Langenus, chief economist at the National Bank.

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But also slightly more expensive food this summer, and the fact that neighboring countries have revised their own wage cost growth downwards slightly, means that the wage gap with the neighbors is larger than predicted in June. And it will take longer to get rid of them. “At the end of 2027, the gap would still be one percent,” says Langenus.

The law provides that this pay gap must be eliminated. “This means that according to our figures there is no margin for baremic wage increases,” says NBB Governor Pierre Wunsch. This applies not only to 2025 and 2026, but also to 2027.

To be clear, it is not the National Bank that determines the extent to which wages may increase. This is determined by trade unions and employers, based on figures from the Central Council for Industry. “But the figures are what they are,” says the NBB.

In any case, the index is insured in our country. But in principle that only compensates for the higher inflation.

Moderate growth

After growth of perhaps 1 percent in 2024, our economy would grow between 1.2 and 1.4 percent in 2025, 2026 and 2027. “That is pretty much the cruising speed of our economy,” says NBB chief economist Geert Langenus. “It’s not going well, not bad. And there are also many uncertainties,” says Langenus.

As in recent years, household spending remains an important driver of growth, with an outlier in the third quarter of 2024 that has not been seen since the pandemic. This growth is expected to moderate somewhat in the coming years.

It is also expected that companies will invest less. “Those investments are declining,” says Langenus. “Not only because regulations are making it increasingly difficult for large investments, but also because companies are running at a low level. The industry is not doing well, there is no reason to invest.”

On the labor market, this translates into a loss of jobs, especially in the private sector. Job creation is at a standstill, but should gradually pick up again. The NBB predicts the creation of around 90,000 jobs from 2025 to 2027.

According to the National Bank, this does not alter the fact that labor demand will remain at the same level. “It remains difficult for companies to fill vacancies,” says Langenus.

Build

The central bank assumes a “slow” recovery in housing investments in the coming years. “But even with that recovery, in 2027 we will be six percent below the investment level of 2019,” says Geert Langenus, chief economist of the National Bank, while “hundreds of billions of euros” of investments are needed in the sector, including to build houses. renovate and make it climate neutral.

Langenus points to several causes for the incomplete recovery of investments in housing. “It remains difficult to obtain permits. And there remain many uncertainties for those who want to buy or renovate, for example about how strict sanctions will be.”