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Densely populated Belgium is located at the heart of one of the world's most highly industrialized regions. The first country to undergo an industrial revolution on the Continent of Europe in the early 1800s, Belgium developed an excellent transportation infrastructure of ports, canals, railways, and highways to integrate its industry with that of its neighbours. One of the founding members of the European Community (EC), Belgium strongly supports deepening the powers of the EC to integrate European economies. Belgium became a first-tier member of the Economic and Monetary Union in January 1999.
With exports equivalent to about two-thirds of GNP, Belgium depends heavily on world trade. Belgium exports twice as much per capita as Germany and five times as much as Japan. Belgium's trade advantages are derived from its central geographic location, and a highly skilled, multilingual, and productive work force.
The Belgian industrial sector can be compared to a complex processing machine: It imports raw materials and semi finished goods that are further processed and re-exported. Except for its coal, which is no longer economical to exploit, Belgium has virtually no natural resources. Nonetheless, most traditional industrial sectors are represented in the economy, including steel, textiles, refining, chemicals, food processing, pharmaceuticals, automobiles, electronics, and machinery fabrication. Despite the heavy industrial component, services account for 72.5% of GDP. Agriculture accounts for only 1.4% of the GDP.
For 200 years through World War I, French-speaking Wallonia was a technically advanced, industrial region, while Dutch-speaking Flanders was predominantly agricultural. This disparity began to fade during the interwar period. When Belgium emerged from World War II with its industrial infrastructure relatively undamaged, the stage was set for a period of rapid development, particularly in Flanders. The postwar boom years, enhanced by the establishment of the EU and NATO headquarters in Brussels, contributed to the rapid expansion of light industry throughout most of Flanders, particularly along a corridor stretching between Brussels and Antwerp (now the second-largest port in Europe after Rotterdam), where a major concentration of petrochemical industries developed.
The older, traditional industries of Wallonia, particularly steelmaking, began to lose their competitive edge during this period, but the general growth of world prosperity masked this deterioration until the 1973 and 1979 oil price shocks and resultant shifts in international demand sent the economy into a period of prolonged recession. In the 1980s and 1990s, the economic center of the country continued to shift northwards to Flanders.
The early 1980s saw the country facing a difficult period of structural adjustment caused by declining demand for its traditional products, deteriorating economic performance, and neglected structural reform. Consequently, the 1980-82 recession shook Belgium to the core--unemployment mounted, social welfare costs increased, personal debt soared, the government deficit climbed to 13% of GDP, and the national debt, although mostly held domestically, mushroomed.
Against this grim backdrop, in 1982, Prime Minister Martens' center-right coalition government formulated an economic recovery program to promote export-led growth by enhancing the competitiveness of Belgium's export industries through an 8.5% devaluation. Economic growth rose from 2% in 1984 to a peak of 4% in 1989. In May 1990, the government linked the franc to the German mark, primarily through closely tracking German interest rates. Consequently, as German interest rates rose after 1990, Belgian rates have increased and contributed to a decline in the economic growth rate.
In 1992-93, the Belgian economy suffered the worst recession since World War II, with the real GDP declining 1.7% in 1993. Growth improved in 1999, with real GDP growing by an estimated 2.2% (year-on-year) versus the 2% figure recorded in 1998. Business investment (up 4.0% in real terms) and exports (up 4.4%) provided the economy's impetus. Private consumption, held back by weak consumer confidence and stagnant real wages, grew by 1% in real terms and public consumption by 0.9%.