Belgian economic activity is expected to decline by 1 % in the fourth quarter of 2020

Belgian real GDP rebounded by 11.4 % in the third quarter of 2020 but the recovery lost traction at the end of the summer. The second surge in the COVID-19 pandemic and the ensuing increase in containment measures are depressing economic activity again. Nevertheless, the direct negative impact of the second lockdown is clearly smaller than in the spring, in particular as the construction and manufacturing industries have remained operational. This explains why the decline in the fourth quarter should remain limited to 1 %.

Private consumption will post the strongest decline. Household spending was again hampered by health fears and the restrictive measures, even though the closure of (non-essential) brick-and-mortar shops was lifted on 1 December. More fundamentally, consumption is supported by robust purchasing power and a positive assessment of their financial situation by households, despite the unprecedented economic crisis. Nevertheless, overall consumer confidence remains low, which is likely to weigh on consumption growth until the uncertainty surrounding the health situation has disappeared.

We expect both business and housing investment to decline again in the fourth quarter, while government investment should continue to expand.

Growth in exports of goods and services should remain in line with foreign demand and stay slightly positive. The decline in domestic demand, on the other hand, should limit import growth. All in all, the contribution of net exports to GDP growth is expected to be broadly neutral in the fourth quarter.

The NBB nowcasting model “BREL” predicts a marginally negative quarterly growth rate of -0.15 % in the fourth quarter, while the “R2D2” model is more pessimistic and predicts a contraction of 1.4 %. The uncertainty of these nowcasting models is exceptionally large in the current circumstances, as the massive shocks since the start of the COVID-19 crisis constitute a challenge for the estimation of standard time-series models. Therefore, these model-based estimates need to be complemented with information gathered from other sources, as well as expert judgment. In that context, the most recent ERMG-survey points to a slight decrease in turnover among Belgian businesses in the fourth quarter of 2020.

All in all, we estimate that Belgian economic activity will decrease by about 1 % in the fourth quarter, which is clearly less than during the first wave.