The Covid-19 pandemic and the containment measures have depressed Belgian economic activity. After having already declined by 3.5 % in the first quarter, Belgian real GDP plummeted by 12.1 % in the second quarter of 2020. This is in line with the euro area as a whole, where activity declined by respectively 3.7 % and 11.8 % in the first two quarters. Belgian second-quarter growth was only supported by positive contributions from net exports and inventories, while consumption and investment contracted sharply.

Belgian GDP growth will rebound in the third quarter of 2020 mainly because containment measures are much less severe than in the first half of the second quarter, even though they continue to weigh on economic activity.

Private consumption will rebound in the third quarter as it is no longer hampered by the closure of (non-food) brick-and-mortar shops and as it is may be supported further by pent-up demand. The recovery in private consumption will however only be partial due to the Covid-19 upsurge: the fear to catch the disease and the remaining or strengthened containment measures still hold back consumption. At the same time, the rebound of consumption will be supported by the fact that purchasing power has not been affected too much, despite the unprecedented economic crisis. The available data on car registrations as well as survey data seem to confirm the upswing in consumption in the third quarter, but the ultra-low consumer confidence could lead to more precautionary saving, which would weigh on consumption growth going forward. Also government consumption should rebound in the third quarter as healthcare expenditures are expected to return to normal levels after having been substantially reduced in the second quarter due to the postponement of many non-Covid-19-related operations and consultations.

We expect business investment to only partially recover in the third quarter as companies are likely to continue to scale back their initial investment plans in a context of very large uncertainty. Revenues and profit margins of firms have been squeezed by the Covid-19 crisis and demand prospects are still subdued and highly uncertain, which is detrimental for investment. In addition, capacity utilisation in the manufacturing industry remained stable in July at its near-historic low and general conditions for access to bank credit have become considerably tighter since the Covid-19 crisis. Finally, according to the ERMG survey of mid-August, firms still indicate that investment is down by about one third due to the Covid-19 crisis. At the same time, a rebound in the construction of new dwellings and renovations is expected in the third quarter and housing investment will also be supported by the recent surge in real estate transactions and registration and notary fees. Finally, government investment should recover as well in the third quarter as certain government investment projects that were temporarily stopped in April and May have now resumed.

The contribution of net exports to GDP growth is expected to be broadly neutral in the third quarter. While exports of goods and services should recover only partially in the third quarter as the rebound in foreign demand was relatively limited, the pick-up in import of goods and services is expected to be slightly faster, supported by the rebound in domestic demand. This would however be broadly offset by a positive “staycation effect” in the third quarter, as many Belgians have spent their holidays during the peak-summer period in Belgium.

The NBB nowcasting model “BREL” predicts a quarterly growth rate of 4.1 % in the third quarter, while the “R2D2” model predicts 11.9 %. However, the uncertainty of these nowcasts is very large in these exceptional circumstances and they need to be complemented with information gathered from other sources as well as expert judgment. The developments in the Covid-19 related weekly revenue loss reported by companies in the ERMG surveys suggest a very strong increase of private-sector output in the third quarter of about 28 %. However, as the current statistics seem to indicate that these ERMG surveys may have overstated the drop in private-sector activity in the second quarter, the upturn in the third is also likely to be less vigorous. Furthermore, non‑market output is also expected to strongly increase in the third quarter as government investment and consumption will rebound. Finally, taking the current statistics for the second quarter and the Bank’s June 2020 projections for the real GDP level in the third quarter as a benchmark, quarterly growth would be about 7 %.

All in all, we estimate that the Belgian economy will increase by 8 % in the third quarter. This is equal to the average of the two model nowcasts and it would imply a slight upward revision of the June projections third quarter GDP level, which could be justified by the positive staycation effect in the third quarter. Finally, it should be stressed that the uncertainty of this nowcast is much higher than usual.