Belgian economic activity is expected to increase by 0.6 % in the first quarter of 2022

The Belgian economy performed better than expected in the fourth quarter of 2021, in particular because restrictions related to the new COVID-wave were less severe than anticipated. The improvement in the health situation and the start of the normalisation of the supply chains should have pushed up growth in the first half of the quarter. However, this beneficial impact is likely to be partially offset by the new spike in energy prices and the war in Ukraine that could significantly reduce growth as of March. We estimate that growth will come in at 0.6% in the first quarter of 2022.

According to the current quarterly NAI statistics, Belgian real GDP increased by 0.5 % in the fourth quarter of 2021. This is better than the estimate in the previous Business Cycle Monitor (+0.2 %) and slightly stronger than fourth-quarter growth in the euro area (+0.3 %). The breakdown into the demand components was not fully in line with our expectations, however. While the decrease in private consumption and investment spending by firms did not come as a surprise, the broad-based decline in domestic demand was unexpected. Only significant positive contributions coming from inventories and net exports kept growth in positive territory in the fourth quarter.

Private consumption growth should be sluggish at best in the first quarter of 2022. The improving health situation and the gradual removal of nearly all restrictive measures should support growth in this demand component, but the sharp increase in uncertainty in the second half of the quarter as well as the new spike in energy prices will work to dampen consumer spending.

Faced with headwinds such as rising input prices and supply-chain bottlenecks, the overall business sentiment indicator continues on its downward trend. Business investment growth will remain weak in the first quarter but less so than in the previous two quarters (when it was likely held back to an important extent by supply chain bottlenecks that have now started to unwind). Similarly, housing investment should expand but at a very modest pace.

Government consumption growth should also return to positive territory in the first quarter, while the roll-out of investment plans ensures that government investment expands at a moderate pace. The growth contribution of net exports should fall significantly in the first quarter.

The NBB nowcasting model “BREL” predicts a quarterly growth rate of close to 0.5 % in the first quarter of 2022, while the “R2D2” model is clearly more optimistic with a growth rate of 1.0 %. However the uncertainty of these nowcasting models is 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. Moreover, the potential economic fallout from the war in Ukraine is not yet fully captured by the indicators used in these models

More generally, the improvement in the health situation coupled with the start of the normalisation of the supply chains, should have pushed up growth in the first half of the quarter. This beneficial impact is likely to be partially offset by the new spike in energy prices and the war in Ukraine that could significantly reduce growth as of March.

All in all, the most plausible point estimate for growth in the first quarter would appear to be 0.6 %.