Belgian Finance Chief Says Budget Cuts Won’t Sink Economy

Belgium can cut its budget without choking off its economy because increased exports will offset the negative impact of lower government spending, Belgian Finance Minister Johan Van Overtveldt said.

“Belgium is a small, very open economy,” Van Overtveldt said in an April 15 interview in Washington.

“If we cut expenditure, we cut growth,” he said. “If at the same time we take a lot of measures to increase the competitiveness of our companies, we will have export growth, and we are quite sure that the one will dominate the other even at relatively short notice.”

Belgian Prime Minister Charles Michel’s government is banking on this strategy to help the nation jumpstart its sluggish economy. Belgium’s budget deficit, at a projected 2.6 percent of gross domestic product this year, is wider than the 1.1 percent GDP growth seen for 2015, according to European Union forecasts.

Van Overtveldt said he was confident Belgium could spruce up its productivity enough to cut expenditures and bring the deficit down.

“The net effect will be additional growth: a little bit less growth due to the cutting of expenditure, a lot of extra growth due to the regained competitiveness,” he said. “The summation of the two is a positive figure.”

Belgium’s government aims to curb wage growth so that Belgian workers won’t fall behind their counterparts in Germany, France and the Netherlands. The most recent official report put the wage growth since 1996 in Belgium at 2.9 percent above the weighted wage growth in the three neighboring countries, down from 3.8 percent at the end of 2013, according to figures from Belgium’s central economic council.

The Belgian National Bank said in December that suspending automatic wage indexation will boost GDP growth starting in 2017. Suspension of wage indexation will have no impact on GDP in 2015 and 2016, and it will boost 2017 GDP growth by 0.1 percentage points, accoding to the bank’s report.

Before it's here, it's on the Bloomberg Terminal.