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Abstract
Following several years of strong growth, real GDP declined by almost 2 percent in 1975; after a sharp recovery in 1976, when over 5 percent real growth was registered, economic activity again turned sluggish. The rate of unemployment rose from 3 percent in 1972 to over 13 percent in 1982. Inflation was also rising; after recording a relatively moderate rise in the latter half of the 1960s, consumer price increases reached a peak of almost 13 percent in both 1974 and 1975. Although the rate abated to a moderate 4½ percent in 1978 and 1979, reflecting in part stringent wage and price policies, it began rising again in 1980, and was close to 9 percent in 1982. The external current account position steadily deteriorated throughout the period—from a surplus equivalent to 3½ percent of GDP in 1972 to a deficit of 4½ percent in both 1980 and 1981. A combination of structural adjustment difficulties in the domestic economy, notably in the important steel industry, expansionary fiscal policies, and adverse external factors contributed to this development. The impact of external factors is particularly strong in the highly open Belgian economy, where foreign trade amounts to over 50 percent of GDP. However, as a result of broad-based measures in 1982 to reduce domestic and external imbalances, the current account deficit dropped to 3½ percent of GDP in that year. Large and persistent fiscal deficits were experienced over the period; their harmful impact on the external current account was substantially mitigated, however, especially in the early part of the period, by an unusually high ratio of private household savings that made noninflationary financing of the fiscal deficit possible.
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