Belgian economic activity is expected to shrink by a further 16 % in the second quarter of 2020
Business Cycle Monitor, June 2020
The Covid-19 containment measures have caused an economic shock that is unprecedented in modern times. Affected by two weeks of containment measures, Belgian real GDP already shrank by 3.6 % in the first quarter of 2020. This is only slightly better than in the euro area as a whole, where activity declined by 3.8 %. First‑quarter growth was only supported by positive contributions from net exports and stockbuilding.
Belgian GDP growth should take a steep dive in the second quarter of 2020.
As regards the demand components, private consumption will plummet, as consumption possibilities have been constrained by the containment measures during several weeks. Consumer confidence has plunged, despite the as yet limited impact of the crisis on household incomes. Government consumption growth is expected to be slightly positive due to extra covid-19-related spending. Business investment is likely to shrink even more: very weak business sentiment indicators reflect the large uncertainty about the global economic outlook as well as the financial strains on companies. Also according to suvey indicators, companies are massively postponing investment plans. Housing investment should decline as well, after real estate transactions fell and the building industry came to a temporary halt. Finally, the contribution of net exports to GDP growth is likely to be close to neutral in the second quarter, as the recent Covid-19 developments would depress both import and export growth.
The NBB nowcasting model ‘BREL’ predicts a -2.3 % GDP growth in the second quarter, while the ‘R2D2’ model expects growth to come in at -2.0 %. However, mechanical nowcasts are not reliable in these exceptional circumstances and substantially overestimate growth. They need to be complemented with information gathered from other sources, such as the specific surveys conducted in the context of the Economic Risk Management Group, as well as expert judgment. It should be stressed that forecast uncertainty is much higher than usual.
Survey information suggests a roughly 30 % loss in output in the private sector during the lockdown weeks and only a very gradual recovery thereafter. At the end of May, output loss was still reported to be about 25 %. As we currently expect no full recovery by the end of June (and assume that turnover losses will only decline to about 15 %), it seems increasingly likely that private sector value added, which accounts for over 80 % of total economy value added, will be down by about 20 % in the second quarter. Non-market output is expected to remain relatively stable.
All in all, we estimate second quarter growth to come in at about -16 %.