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Our competitive position has been eroded, and the negative consequences are gradually becoming more and more apparent. 2023 was announced by Prime Minister De Croo as the year of competitiveness. Urgent time to really work on it.

During the inflation surge last year, all kinds of doomsday scenarios were launched about the purchasing power of families. These now appear to be grossly exaggerated. According to new forecasts from the National Bank and the Planning Bureau, average purchasing power will increase by 6 to 7 percent in 2021-2024 (that's on top of inflation, to be clear). So, on average, there is no purchasing power problem at all, and that's mainly thanks to strong wage and benefit increases due to indexation. But meanwhile, the downside of this is also starting to become more and more apparent.

Companies under pressure

Corporate profits, for example, are under severe pressure, as expected. In the first months of 2023, the average gross margin rate, a very rough macroeconomic approximation of profit margin, fell sharply. Behind that average, then, lies a great deal of variation. For a large proportion of companies, profit margins have already fallen markedly. And in all likelihood, they will drop further in the coming quarters.

In addition, our competitive position is faltering. Again according to the Planning Office, our export companies will lose about 4 percent of market share in international markets in 2022-2024. That faltering competitive position is also clearly illustrated in manufacturing, a sector that accounts for more than half of our exports. There, capacity utilization today is below the average of the past 30 years. In chemicals, where in addition to labor costs, energy prices also play an important role in competitiveness, capacity utilization at the beginning of this year even fell to its lowest level since observations began in 1980. There was some improvement in recent months, but activity in the sector remains well below average.

The current account of our balance of payments, which reflects activity with foreign countries, already dipped into the red last year, initially under pressure from rising energy prices. According to the forecasts of the National Bank, the Planning Office, the OECD and the European Commission, that current account will continue to hang in the negative figures in the coming years. This is the first time since the early 1980s that the current account has gone into the red for several consecutive years. That too is an alarm signal for our competitiveness.

No sense of urgency

For now, our policymakers seem remarkably at ease with the growing signs of the negative impact of our impaired competitiveness. This may be explained mainly by the fact that no major company closures or waves of layoffs have yet been announced. But even without such doomsday scenarios, the impaired competitive position is undermining our economic potential for the coming years. This is happening mainly because companies are increasingly reviewing their investment plans in Belgium. Companies based here will consider alternatives in other countries, and foreign companies will probably think twice before investing (further) in Belgium. These missed investments will weigh on our long-term growth potential.

Even today, the policy focus remains primarily on purchasing power. This is evident, among other things, from the plans for fiscal reform that are on the table today. In the meantime, however, the affected competitive position is a greater threat to our economy. 2023 was announced by Prime Minister De Croo as the year of competitiveness. Urgent time to really work on it.

Bart Van Craeynest is chief economist at Voka and author of the book Terug naar de feiten.

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