National Bank estimates Belgium’s economic growth at 1.5 % for this and next year

Brussels, 15 June 2018 ‑ Following a slight slowdown in the first two quarters of 2018, economic activity in Belgium will pick up a little in the second half of the year, according to a new estimate by the National Bank. Annual growth is now estimated at 1.5 % for both 2018 and 2019

Global economy

After having produced strong growth last year, the global economy appeared to lose momentum somewhat at the turn of the year, particularly in many advanced countries. Thus, American economic activity slackened pace while the British economy more or less stagnated and the Japanese economy actually contracted. Such a downturn in the growth cycle is not unusual following strong expansion in which the unused production capacity has diminished. Furthermore, commodity prices have risen, and announcements of protectionist measures have fuelled doubts about the degree to which world trade will continue to support global growth. That uncertainty may depress investment. In addition, various emerging economies have to contend with current account deficits causing mounting funding problems due to shifts in international asset positions. In the United States, in particular, interest rates have risen against a backdrop of increasing inflation expectations, partly as a result of the expansionary fiscal policy in an economy which already has a high rate of capacity utilisation. Overall, the common assumptions for these projections still foresee continuing strong growth of the global economy and world trade. However, in subsequent years the growth of world trade will gradually slow down compared to global GDP growth.

Euro area

Economic growth in the euro area has also normalised somewhat since the turn of the year, following a strong expansion in 2017. According to the new Eurosystem estimates, the growth of activity will drop to 2.1 % this year, which is below the ECB’s March forecasts but remains solid and more or less in line with the Eurosystem’s latest autumn projections. After that, however, activity is set to slow further, with growth at just 1.7 % in 2020 as a result of the diminishing dynamism of world trade, but also because of labour market supply shortages which will hold back growth even more. This year, as in 2017, inflation in the euro area is being driven by rising energy prices. After adjustment for these and other volatile components, core inflation rises throughout the projection period due to increasing domestic cost pressure and reaches 2 % by the end of 2020.

Belgium

The macroeconomic estimates for Belgium have been revised downwards slightly compared to the autumn forecasts. At 0.3 %, growth in the first quarter – according to the revised NAI statistics – was somewhat lower than initially expected. In the second quarter, activity is expected to expand at the same rate. Taking account of the said common assumptions, and in line with the euro area as a whole, growth will pick up slightly in the second half of the year. Over the year 2018 as a whole, growth thus comes to 1.5 % for Belgium and, as in the autumn projections, will subsequently slow down a little more up to 2020, primarily as a result of the cooling of the corporate investment cycle – in accordance with the fundamental determinants – and declining export growth. Though household consumption is expected to accelerate owing to the pick-up in real wages and the stronger rise in purchasing power, it can only partly offset these factors. The negative growth gap evident since 2015 between Belgium and the euro area will narrow slightly, but does not disappear altogether during the projection period.

“As for the Euro Area, the forecast for Belgium still points to a solid expansion and job growth is expected to remain robust”, according to Governor Jan Smets. “Nonetheless, downward risks have increased in the international environment.”

Domestic employment increases by 97 000 units over the forecast horizon (2018-2020). These come in addition to the 163 000 jobs that have been created in the past three years. While the number of hours worked per person has been steadily rising, job creation has thus slowed down since the 2017 peak, as lower GDP growth has reduced demand for labour to some degree, and the continuing labour market shortage is holding back employment growth. In addition, the renewed rise in labour costs in the coming years will contribute to the normalisation of the job intensity of growth. The unemployment rate, which is back to a level that has not been observed since the start of the century, is likely to remain more or less unchanged on an annual basis over the projection horizon: the further increase in the labour force, resulting partly from the measures to limit early retirement from the labour market, will broadly match the pace of job creation.

Inflation is estimated at 2.1 % this year, subsequently declining to 1.6 % in 2020 as a result of the steady fall in energy prices over the next two years. However, core inflation edges up from 1.3% in 2018 to 1.8 % in 2020. Nevertheless, as in the past, the rise in labour costs will not be entirely passed on in prices but instead will be accompanied by a moderation of profit margins.

As regards public finances, the 2018 budget deficit is again lower than previously expected, namely 1 % of GDP, as in 2017. The main reason is the new, substantial increase in advance payments by companies, in the context of the further rise in the charge imposed if advance payments are insufficient. However, this is a temporary factor which will lead to lower assessments when corporation tax is settled. During the projection period the budget deficit will therefore worsen, despite the further reduction in interest payments on the debt, and is estimated at 1.8 % by the end of the projection period. The public debt is expected to decline from 103.4 % in 2017 to 101.1 % of GDP in 2020.

It should be remembered that, in accordance with the Eurosystem rules for such projection exercises, account is only taken of measures which, on the cut-off date for the estimates, the government has already specified in sufficient detail and has formally approved or is very likely to do so. In addition, the estimates of the impact on the budget of certain measures, such as those to combat fraud, may deviate from the amounts included in the budget. 

 

2017 

2018e 

2019e 

2020e 

 

 

 

 

 

GROWTH (calendar adjusted data)

 

 

 

 

Real GDP

1.7

1.5

1.5

1.4

Contributions to growth:

 

 

 

 

Domestic expenditure, excluding change in inventories

1.2

1.5

1.5

1.6

Net exports of goods and services

0.5

0.2

-0.1

-0.2

Change in inventories

0.1

-0.3

0.0

0.0

 

 

 

 

 

PRICES AND COSTS

 

 

 

 

Harmonised index of consumer prices

2.2

2.1

1.9

1.6

Health index

1.8

1.6

1.9

1.7

GDP deflator

1.7

1.3

1.5

1.8

Terms of trade

-1.3

-0.4

-0.4

0.2

Unit labour costs in the private sector1

2.1

1.8

2.0

2.0

Hourly labour costs in the private sector1

1.8

2.2

2.9

2.8

Hourly productivity in the private sector

-0.3

0.3

0.8

0.8

 

 

 

 

 

LABOUR MARKET

 

 

 

 

Domestic employment (annual average change, in thousands of persons)

65.3

41.4

29.9

25.5

Total volume of labour2

1.7

1.1

0.7

0.6

Harmonised unemployment rate (in % of the labour force aged 15 or over)

7.1

6.7

6.7

6.8

 

 

 

 

 

INCOMES

 

 

 

 

Real disposable income of individuals

1.4

1.3

1.9

1.7

Savings ratio of individuals (in % of disposable income)

11.3

11.2

11.4

11.5

 

 

 

 

 

PUBLIC FINANCES

 

 

 

 

Primary balance (in % of GDP)

1.4

1.3

0.3

0.2

Overall balance (in % of GDP)

-1.0

-1.0

-1.8

-1.8

Public debt (in % of GDP)

103.4 

102.3 

101.8 

101.1 

 

 

 

 

 

CURRENT ACCOUNT

(according to the balance of payments, in % of GDP)

-0.2

-0.3

-0.7

-0.7