Belgium’s credit rating affirmed at S&P, outlook revised to negative due to budget risks

Investing.com -- S&P Global Ratings revised its outlook on Belgium’s sovereign credit ratings from stable to negative on April 25, 2025. The agency also affirmed the ’AA/A-1+’ unsolicited long- and short-term foreign and local currency sovereign credit ratings. The revision is primarily due to risks associated with Belgium’s budgetary consolidation and vulnerability to global trade tensions.

The negative outlook reflects heightened risks around Belgium’s budgetary consolidation, given the high government debt of 104% of GDP in 2024. The current global trade tensions could also affect Belgium’s economic growth prospects as a key trade hub in Europe.

The agency could lower its sovereign ratings if Belgium fails to reduce its large budget deficits in line with current forecasts or if the trade shock affects its economic growth prospects beyond current expectations, further weakening fiscal outcomes.

On the other hand, S&P could revise the outlook to stable if Belgium’s budget deficit narrows sufficiently to put government debt to GDP on a downward trajectory.

The 2025 budget agreement, reached by the "Arizona" coalition, brings policy clarity and signals a shift toward fiscal prudence. However, the implementation faces significant challenges, including complex regional negotiations and possible social backlash.

As a major European trading hub, Belgium is vulnerable to international trade tensions. While only 5% of its exports go directly to the U.S., its role in facilitating commerce between Germany, France, and the U.K., along with its transport- and logistics-based economy, exposes it to significant second-round effects from U.S. tariffs.

In 2025, private consumption, supported by automatic wage indexation, is expected to sustain growth, but net exports will likely remain subdued and could face a sharper downturn if tariffs rise beyond current expectations.

Despite greater policy clarity, risks to fiscal outcomes are significant, while trade tensions will mute net exports. The recent 2025 budget agreement brings policy clarity and signals a shift toward fiscal prudence.

According to S&P Global, Belgium’s economy is vulnerable to trade tensions but is likely to remain afloat in 2025 thanks to private consumption. Increasing spending in the EU will support a rebound in 2026-2028.

Belgium’s multilayered institutional setup and social backlash may slow implementation. While the ruling coalition holds a parliamentary majority, challenges could arise when coordinating with regional governments across deep political and geographic divides. The agreement has also sparked strong opposition, particularly from trade unions, which could complicate the mid-year budget review and increase pressure to ease the pace of budget deficit reduction.

The 2025 budget agreement will help contain ballooning deficits, but the impact could be lessened by spending pressures. Government debt is one of the highest in the eurozone and still increasing. Belgium’s external position is strong, with a solid net asset position, despite mild current account deficits.

In the absence of fiscal policy measures, the budget deficit will continue to increase. It widened to 4.5% of GDP in 2024, slightly below the government’s target of 4.6%. This is unusual for Belgium, which typically outperforms its budgetary goals. Without reforms, the deficit could approach 6% of GDP by 2027, compared with 2% in 2019.

The budget agreement will help contain ballooning deficits. Proposed reforms are still pending parliamentary approval. They include measures to control wage growth, cap unemployment benefits at two years, introduce a dividend tax, reform corporate taxation, and provide research and development tax incentives.

Belgium’s external position remains strong despite current account deficits. The current account widened in 2024 as exports fell--driven by a drop in pharmaceutical sales after the pandemic--outpacing the decline in imports. Over 2025–2028, we expect the deficit to stabilize, with lower exports due to trade disruptions offset by declining imports, given their close link through re-export activity. Belgium exhibits a strong external balance, with a projected net external asset position of 60% of GDP in 2025.

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