Belgium's Stabilizing Consumer Confidence: A Strategic Opportunity in a Slowing European Economy

Belgium's consumer confidence index has stabilized at -4 in July 2025, marking a rare pause in its year-long climb from -14 in May 2024. While this figure remains below the pre-pandemic baseline, the trajectory reflects a nuanced story: consumers are cautiously optimistic about their personal finances, yet increasingly wary of macroeconomic headwinds. This duality creates a fertile ground for investors to assess the resilience of consumer-driven sectors in a European economy still grappling with inflation, energy insecurity, and geopolitical volatility.

The Stabilization: A Mixed Signal

The index's stabilization at -4 is a product of diverging trends. On the positive side, personal financial sentiment improved to -2 in July, up from -3 in June, as households adapt to tighter budgets and shifting spending priorities. Meanwhile, the propensity to save remains robust at 19, a testament to lingering caution. However, optimism about the broader economy has deteriorated, with the general economic outlook dropping to -26 from -24 and unemployment expectations worsening to 7. This duality—personal resilience vs. macroeconomic pessimism—highlights the fragility of the current stabilization.

The risk of a confidence reversal looms large. A single shock—such as a spike in energy prices or a spike in unemployment—could trigger a rapid retreat in sentiment. Investors must weigh this risk against the current underpinnings of stability: reduced inflation (3.2% in November 2024), the ECB's rate-cut pivot, and a modest rebound in industrial production.

Defensive Equities: The New Safe Haven

As cyclical sectors falter, defensive equities in Belgium have outperformed by a staggering margin. Year-to-date, defensive stocks (utilities, healthcare, consumer staples) are up 5.2%, while cyclical sectors (tech, communication services) have declined 7.9%. This divergence is not accidental—it reflects a structural shift in investor behavior.

The Belgian government's push to increase defense spending to 2% of GDP by 2029 (from 1.3% currently) has catalyzed a surge in demand for defense-linked equities. State-owned Belfius, with €200 billion in assets, has reallocated capital toward NATO-aligned defense firms, signaling a strategic pivot. European aerospace and defense stocks like Germany's Rheinmetall (DE:RHMT) and Italy's Leonardo (IT:LEA.MI) have surged, with the VanEck Defense UCITS ETF (DEFN) rising 23% in 2025.

This trend is underpinned by NATO's 5% GDP defense spending target by 2035 and the European Commission's push for self-reliant defense capabilities. For investors, the key is to identify firms with long-term contracts and exposure to critical technologies (e.g., cybersecurity, satellite systems). Defensive utilities and healthcare providers, meanwhile, offer steady dividends amid volatility.

Regional Retail: Navigating Vacancy and Innovation

Belgium's retail sector presents a mixed landscape. While shopping centers maintain low vacancy rates (6.7%), urban centers like Charleroi (36.2% vacancy) and Péruwelz (32.8%) struggle to repurpose empty retail spaces. This dichotomy creates opportunities for agile players.

Crelan, Belgium's largest retail chain by outlets, has capitalized on the AXA merger to expand its footprint, now operating 288 branches. Similarly, Colruyt has surged to the top in shop floor area (WVO), adding 12,060 m² in 2025. These firms are leveraging economies of scale and digital integration to counteract sector-wide challenges.

However, the rise of e-commerce and bankruptcies (e.g., Bristol, Esprit) have forced traditional retailers to innovate. Hema, a Dutch entrant, has expanded into Belgium with five new outlets, targeting premium consumers. The company's success underscores the potential for niche, experiential retail in a fragmented market.

Investors should focus on regional players with strong local ties and diversified revenue streams. For example, Colruyt's mix of groceries, fashion, and services provides a buffer against sector-specific downturns. Conversely, chains reliant on single formats (e.g., fashion-only) remain vulnerable to shifting trends.

The Risks: A Confidence Reversal?

Despite the current optimism, several red flags persist. The July data shows a marginal deterioration in unemployment expectations (to 7) and a broader economic outlook (-26). If these trends accelerate, the ECB's rate-cutting cycle may prove insufficient to offset the drag on consumer spending.

Moreover, Belgium's FDI screening mechanism—while currently lenient—could tighten in response to geopolitical tensions, affecting foreign-backed retail and tech ventures. Investors must also monitor the ripple effects of the EU's 1.7% GDP growth target and the potential for a synchronized slowdown in the region.

Strategic Recommendations

1. Defensive Sectors First: Prioritize utilities, healthcare, and defense-linked equities for their stability and alignment with European rearmament goals.
2. Regional Retail Selectivity: Invest in chains with diversified formats (e.g., Colruyt) and strong ESG credentials, which appeal to a sustainability-conscious consumer base.
3. Hedge Against Reversals: Allocate a portion of portfolios to cyclical sectors (e.g., tech) with strong earnings growth projections, but cap exposure at 30% to mitigate downside risk.
4. Monitor FDI Policy Shifts: Track the Interfederal Screening Commission's decisions for insights into regulatory risks for foreign investors.

In conclusion, Belgium's stabilizing consumer confidence reflects a delicate balance between personal resilience and macroeconomic fragility. For investors, the path forward lies in capitalizing on the outperformance of defensive equities and regional retail innovators while remaining vigilant to the risks of a confidence reversal. The key is to build a portfolio that thrives in both stability and uncertainty—a hallmark of prudent investing in an unpredictable era.