Belgian activity growth is expected to edge down slightly to 0.2 % in the fourth quarter of 2019

Business Cycle Monitor, December 2019

Belgian GDP growth would ease from 0,4% in Q3 to 0,2% in Q4. We expect business investment and private consumption to slightly decelerate, while net exports would continue to weigh on GDP growth and housing investment would pick up. The NBB nowcasting models give however divergent signals for the fourth quarter growth, which suggests that our nowcast is subject to a large uncertainty.

Belgian GDP growth increased to 0.4 % (q-o-q) in the third quarter of 2019. The underlying growth momentum in Belgium was however slightly lower as about 0.1 pp of third-quarter growth was due to a specific transaction related to a wide-ranging R&D cooperation agreement which would not affect GDP growth in the following quarters. The Belgian growth rate was above that of the euro area, which remained modest at 0.2 %. It was supported by positive contributions of consumption and business investment while public and housing investment as well as net exports contributed negatively to activity growth. Looking at the production side, the increase in value added was mainly driven by the business-related services and construction industries, while the value added in the manufacturing and affiliated industries, which has declined over the past two years, only marginally edged up in the third quarter.

In the fourth quarter, private consumption would slightly decelerate as fundamentals remain relatively strong but signals coming from survey indicators are mixed. Business investment growth would also lose some traction in the fourth quarter. While headline business confidence and demand expectations have recently partly recovered and financing conditions remain favourable, capacity utilisation has declined, and the global outlook has worsened. We expect a rebound in housing investment as mortgage interest rates have further declined to historically low levels, income prospects are strong and confidence indicators in the building industry remain at elevated levels. The contribution of net exports to GDP growth is expected to be negative again in the fourth quarter. The recent minor uptick in survey data on foreign demand only marginally offsets the very large decline over the past two years.

The NBB currently uses two nowcasting models to make short-term estimates for activity growth. The results for the fourth quarter of these models show an unusually large divergence. While the NBB’s BREL model forecasts a slight increase to 0.5 %, the NBB’s other model R2D2 is more pessimistic at -0.1 %. However, the latter model is particularly sensitive to developments in manufacturing, while, according to the current statistics, the weak growth in manufacturing still coincides with positive, albeit moderate overall real GDP growth. The lasting resilience in the services industry and domestic demand can still be expected to shore up GDP growth in the fourth quarter as well, even if, looking further, the Belgian economy may lose further steam if the dismal external and manufacturing outlook does not improve. All in all, a minor deceleration to a growth rate of 0.2 % appears to be the most plausible estimate for the fourth quarter at the current juncture, even though uncertainty remains particularly high.