The other big question on May 1: who is best equipped to withstand the inflation shock?

The question (of preserving) purchasing power, the theme that dominates the debates of this May 1, is legitimate. But the country’s economic problems are much broader.

The celebration of Labor Day is always accompanied by compulsory figures. The socialist movement gathers, the left fists rise in unison before the militants and sympathizers sing the Internationale. This year marks the return of squares and streets littered with red flagsafter at least two years of demonstrations and festivities, covid commits.

But bright red also appears in inflation figures

The powerful external shock to our economy is adding to the damage caused by the pandemic. But economic actors – governments, households and businesses – have not suffered in the same way from the Covid crisis and are thus more or less well equipped to deal with the inflation shock.

34

Billions of Euros

For the Belgian economy, after a year of pandemic, the bill already amounted to 41 billion euros, of which 34 billion only for the government.

The state emerges most weakened† The National Bank had prepared an interim assessment of the damage caused by the crisis in February 2021, after 12 months of restrictive measures. For the Belgian economy, the bill already amounted to 41 billion euros, of which 34 billion only for the government, the balance is divided in relatively equal parts between companies and households.

Disposable income is rising

The National Bank’s most recent forecasts confirm this picture. In 2020, Belgian households saw their real disposable income – taking inflation into account – rise by 0.9%. Last year the increase was 0.6% and in 2022 the increase should be the same, the BNB estimates

Admittedly, this is data that applies to all households. But categorical differences have smoothed out rather than magnified recently† For example, the poverty rate has fallen: in 2021, 13% of the population was at risk of poverty – the threshold corresponds to a disposable income of 1,287 euros per month for a single person. A year earlier this was still 14.1%.



The number of people lacking the resources for basic goods and services, such as heating or owning two pairs of shoes, has declined.

The poverty rate is a relative figure: it depends on the median income. We can also use “material deprivation” which assesses the group of people who lack the resources for basic goods and services, such as heating or owning two pairs of shoes. But this group has also shrunk.

Corporate profits down

Companies generally survived the crisis without too much damage† Government support and the moratorium on bankruptcies have contributed to this. But companies have spared no expense to adapt to restrictions† According to Graydon and Unizo, Belgian SMEs therefore kept 22 billion euros of their profits in 2019 to strengthen their financial resilience.



In 2022, the total profits of Belgian companies are expected to fall significantly due to higher energy, labor and raw material costs.

So companies have been able to benefit from the recovery, as evidenced by the historic highs of their profit margins in 2021. But here the differences are significant. While three in ten companies typically end their fiscal year at a loss, poverty rates for the self-employed deteriorated last year† In 2022, the total profits of Belgian companies are expected to fall significantly due to higher energy, labor and raw material costs. In March, the number of bankruptcies was already 50% higher than a year earlier.

Current Challenges

That brings us to the current challenges. The BNB predicts economic growth of 2.4% in 2022, a third less than before the Russian invasion of Ukraine. At the moment, the Belgian economy is even contracting slightly, previously a possible rebound in the second half

This deterioration affects everyone. It is not wrong for the unions to point to the declining purchasing power. The fact that total household spending is expected to increase by 0.6% this year is mainly due to a slightly higher inflow into the labor market. But per capita the situation is less rosy.

This is the debate of this 1er May between unions and employers. The former claim an acceleration in wage growth, the latter claim that their personnel costs will increase by 13% in three yearsby the automatic adjustment of salaries to inflation.

This game translates the vulnerability of the Belgian economy, not only in terms of purchasing power, but also in terms of employment and competitiveness and public finances† Within the European Union, only Romania could have a higher government deficit than Belgium by 2027, the International Monetary Fund predicts.

Therefore, an honorable way out of the current debate of the 1er may be distribute the effort fairly: between companies, the state and employees

The summary

  • The main demand of the socialist movement on the occasion of the Labor Day: a increased purchasing power
  • The external shock, caused by the rise in the cost of imported energy, nevertheless creates: Other problemsas the deterioration of our competitive position and a increase in government debt
  • The covid crisis, which is mainly borne by the government, has hardly been digested. To cope with this, from the start of the crisis, SMEs had strengthened their financial buffer by allocating EUR 22 billion of their profits to it.

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