Belgian economic activity is expected to flatline in the second quarter of 2022

The Belgian economy performed broadly in line with our expectations in the first quarter of 2022 The relatively strong quarterly growth of 0.5 % reflects the fact that the lifting of the containment measures in the last quarter still had an important carry-over effect on quarterly growth at the start of 2022. As expected, this has outweighed the increasing economic headwinds partly caused by the war in Ukraine (spiking energy prices and worsening supply chain problems). However, the post-pandemic normalisation will not boost current-quarter growth to the same extent, while the headwinds remain. As a result, economic activity is expected to decelerate markedly and all in all, we expect growth to flatline in the second quarter.

Belgian real GDP increased by 0.5 % in the first quarter of 2022. Hence, growth was more or less in line with the previous Business Cycle Monitor estimate (+0.6 %) and was revised up considerably compared to the NAI’s first flash estimate.

The sharp increase in uncertainty as well as the temporary hit to purchasing power due to high inflation and lagging indexation mechanisms should lead to a slight decrease in private consumption in the second quarter of 2022. In the somewhat longer run, fundamentals for private consumption remain solid.

Business investment expanded in the first quarter, after a marked decline in the second half of 2021. Business sentiment is on a gradual downward trend and demand expectations are worsening quickly. Hence, we expect business investment growth to moderate in the second quarter. Similarly, housing investment is also expected to decelerate in the second quarter, also due to rising mortgage rates.

Government consumption growth should rise in the second quarter, while the roll-out of investment plans should boost government investment. The growth contribution of net exports should remain close to zero in the second quarter as exports and imports are likely to decline to roughly the same extent.

The NBB nowcasting model “BREL” currently estimates quarterly growth in the second quarter at about 0.3 %, while the “R2D2” model is more optimistic with a growth rate of 0.8 %. However, the uncertainty of these nowcasting models remains exceptionally large as the massive shocks since the start of the COVID-19 crisis constitute a challenge for the estimation of standard time-series models.

All in all, we currently see a stagnation of economic activity (0 % growth) as the most plausible estimate. The drop in activity growth in March seems to have been less dramatic than initially feared, but the starting point and the carry-over for the second quarter are bound to be much worse than for the first quarter. Business confidence keeps trending down and demand expectations are falling. At the same time, mounting inflationary pressures are clearly and increasingly affecting consumer purchasing power and confidence. Both will work to reduce the growth rate in the second quarter.