Belgian economic activity is expected to increase by 1.8 % in the third quarter of 2021

Belgian economic activity continues to recover swiftly. According to revised statistics Belgian GDP increased by 1.7 % in the second quarter. This is even better than the estimate in the previous Business Cycle Monitor (+1.3 %).

Belgian quarterly growth came in at 1.7 % in the second quarter of 2021 according to the current vintage of the statistics. This is 0.4 percentage points above the estimate in the previous Business Cycle Monitor but also constitutes a significant upward revision from the NAI’s flash estimate of 1.4 %. The breakdown into the demand components was in line with our expectations. Growth was supported by a rebound in domestic demand and private consumption in particular, while net exports constituted a drag to growth.

Private consumption growth should be even higher in the third quarter, mostly because it was still weighed down by several containment measures in the early weeks of the second quarter. Most containment measures have been lifted gradually after Easter, as planned, and the final phase of the exit plan from the containment measures started in September.

While the overall business sentiment indicator seems to have peaked, it remains well above its pre-crisis level. Moreover, capacity utilisation is on the rise. Business investment should accelerate again in the third quarter. Government and housing investment should also continue to expand.

The contribution of net exports to GDP growth is expected to come in slightly negative again in the third quarter. Strong domestic demand is boosting import growth while decelerating manufacturing demand in particular should limit export growth in the near term.

The NBB nowcasting model “BREL” predicts a quarterly growth rate of about 1.2 % in the third quarter of 2021, while the “R2D2” model is somewhat more optimistic with a growth rate of 1.4 %. The uncertainty of these nowcasting models is exceptionally large in the current circumstances: the massive shock of the COVID-19 crisis constitutes 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 connection, the carry-over effect due to the steep increase in activity in the course of the second quarter should mechanically push up growth in the third quarter. Even if activity may actually already be decelerating in the second half of the summer, we estimate that this effect is important enough to keep the quarter-on-quarter growth at roughly the same rate as in the previous quarter.

All in all, taking into account other information, we currently estimate that Belgian economic activity will increase by 1.8 % in the third quarter.