Recovery of the Belgian economy struggles to get off the ground as up to 180 000 workers on temporary lay-off face redundancy in the short term

At the start of the first major stage of the deconfinement, the average loss of turnover reported by Belgian companies has improved only very slightly, according to the ERMG survey conducted last week. Although it is of course still too early to make any real assessment of the partial restart of the economy, the companies questioned largely continue to point to slack demand hindering any recovery. In this regard, these firms have indicated their intention to make roughly one in every five workers on temporary lay-off redundant. This means that up to 180 000 workers stand to lose their jobs. 

For the sixth consecutive week, a survey was carried out by a number of federations of enterprises and the self-employed (in particular BECI, Boerenbond, UNIZO, UWE and VOKA for this latest poll). This initiative is being coordinated by the NBB and the FEB/VBO with the objective of assessing, week by week, the impact of the coronavirus crisis on economic activity in Belgium as well as on the financial health of Belgian companies and on their decision-making. In all, 2 675 firms and self-employed people replied to the sixth survey[1]. This time, polling began on the Tuesday so as to better reflect the impact of the deconfinement measures put in place from Monday 4 May.

Table 1:    Impact of the coronavirus crisis on company turnover1

                 (in %, weighted average based on turnover and aggregated by industry)

           

Survey
30 March

Survey
6 April

Survey
13 April

Survey
20 April

Survey
27 April

Survey
5 May

 

 

 

 

 

 

 

Flemish Region

-33

-37

-34

-34

-33

-29

Brussels-Capital Region

-29

-31

-26

-31

-28

-26

Walloon Region

-34

-37

-34

-34

-33

-30

 

 

 

 

 

 

 

Belgium

-33

-36

-33

-34

-32

-29

 

 

 

 

 

 

 

Sources: BECI, Boerenbond, FEB/VBO, SNI/NSZ, UNIZO, UWE, VOKA, NBB.

1   Representation of the various industries in the sample varies between regions. For the purposes of this calculation, it is assumed that the impact of the crisis by industry does not vary depending on the region. Please also note that figures may differ slightly from previous publication figures due to the inclusion of data obtained afterwards and because the data analysis is continuously refined.

Company turnover picking up only very slowly

Although, in principle, industry and business-related services have been able to be fully operational again since 4 May, the average loss of turnover reported by Belgian companies has so far improved only marginally. If the firm’s turnover and the weight of the branches of activity in value added are both taken into account[2], the firms polled reported a drop in their turnover of 29 % compared with the pre-crisis situation. Once again, this is a slight improvement on the previous week, even though the recovery is clearly struggling to get going.  

 

[1]    Participation in the survey by some federations whose members operate in a specific sector of activity may lead to sampling errors. For instance, companies from one by branch of activity could be strongly represented in our sample but not actually have much weight in the economy as a whole. The sample by branch of activity is therefore stratified depending on the weight in value added in Belgium. However, the trend in survey responses over the weeks should be interpreted with caution, given that the firms that took the survey may differ from one week to the next.

[2]    The weight in value added in the sector of real estate activities has been adjusted so as to give a better representation of the weight in the Belgian economy of firms from this branch that took part in the survey. This technical adjustment has also been made to the previous weeks’ results.  

ERMG1

The weak upturn is largely explained by contrasting trends at sectoral level. In particular, a marked improvement has been observed in some branches of activity, like trade (notably, non-food retailing and wholesale trade) and the construction sector. The deconfinement measures put in place over the last two weeks have enabled some shops and businesses to reopen. On the other hand, certain services branches, such as real estate activities and the information and communication sector, have reported a net deterioration of turnover. Even the contraction of turnover in the farming industry seems a little less this week, although this comparison is compounded by the fact that the Boerenbond took part in this latest survey, but not in the previously week’s poll, which makes the current figures more reliable.

This week’s survey was launched on 5 May, so the period covered since the above-mentioned containment measures were relaxed – with effect from 4 May – is relatively short. It may therefore still be too early for the effects of this easing of restrictions to be fully reflected in the survey findings so that the loss of turnover reported by firms is expected to continue to subside in the next few weeks. It should nevertheless be pointed out that, despite the phased recovery of the economy, it may take quite some time before we see the economy recovering fully: 60 % of firms surveyed effectively cite insufficient demand as being the main obstacle to this recovery.

As far as cash-flow problems are concerned, the proportion of firms questioned hinting that they would not be able to maintain their cash-flow position beyond three months is down slightly: 29 % (compared with 35 % last week). The risk of bankruptcy is also subsiding a little, while remaining relatively high and concentrated in certain specific sectors. In fact, 7 % of firms surveyed feared that bankruptcy was likely or very likely, but the proportion is as high as 28 and 19 % respectively in the arts, entertainment and recreation sector and in accommodation and food service activities.

One in five workers on temporary lay-off likely to lose their jobs in the summer

Throughout the current phase of the crisis, the temporary lay-off scheme has proved to be an important stabiliser: workers on temporary unemployment do of course receive State benefits, but they remain employed by their company. However, by its very nature, this scheme is only provisional. For this reason, the survey also sounds out companies’ intentions if it were to be stopped. It is currently scheduled to be scrapped at the end of June.

ERMG2

The replies from the firms surveyed suggest that the vast majority of workers laid off temporarily should resume work for their current employer, although this return to work would to some extent be via teleworking. Owing to the persistence of the crisis and the rather gloomy demand forecasts, one in every five workers on temporary lay-off could nevertheless be made redundant. Based on the National Employment Office’s estimate of the number of workers on temporary lay-off dating from March, i.e. around 900 000, this means that some 180 000 workers risk losing their jobs in the relatively short term. This would be nearly 6 % of the total number of workers in the private sector. There are, however, differences observed between branches of activity and these are relatively pronounced for some of them. As for the hardest-hit branches of activity, many more job losses are to be feared: in the case of hotels and catering, it is likely to be around 17 % of the total number of workers (almost quarter of all workers on temporary lay-off) and for the arts, entertainment and recreation sector, this proportion is even expected to climb as high as 40 % (almost half of all temporary lay-offs).

It should nevertheless be noted here that these figures refer exclusively to salaried workers. The overall negative impact on employment – and thus on demand – in the coming months is consequently under-estimated, since the figures do not take account of the self-employed, who this week also reported the heaviest loss of turnover since the survey started and some of whom risk having to cease their business activities. As no fewer than 9 % of self-employed workers questioned declared that the risk of bankruptcy was likely or very likely, the impact could turn out to be quite substantial at this level. For the record, there were 825 000 self-employed workers in Belgium at the end of 2019.

Although the automatic stabilisers and the measures already taken at this stage have in large part helped compensate for the first wave of this shock, the coronavirus crisis could, under the impact of healthy companies collapsing or a persistent increase in unemployment, cause structural damage to the economic fabric. The extent to which such a situation can be avoided will be a determining factor in the strength of the recovery when the current containment measures are lifted.