HEADLINES BELGIAN ECONOMY - DECEMBER 2005

The latest update of the FPB medium-term outlook for Belgium shows an average GDP growth reaching 2.1% during the 2005-2010 period. This development can be largely accounted for by both domestic demand and exports, although the contribution of net exports to economic growth is expected to be limited; the current account should continue to decrease until 2006 due to terms of trade losses. Private consumption should grow at a moderate pace during the projection period (1.7% on average), in line with growth of households’ disposable income in real terms. At the same time, gross fixed capital formation (and particularly business investment) should grow at a sustained pace with annual growth reaching 2.9% on average. The structural loss of export market share should be important, with exports increasing by 5% a year on average, compared with a 6.5% growth of our potential export markets.

Inflation should reach 2.2% on average during the projection period, due to figures close to 3% in 2005 and 2006. The current acceleration is explained by high energy prices and the recent depreciation of the euro against the dollar. However, inflation should be around 2% in 2007 and fall below 2% at the end of the projection period, mainly because of limited wage increases and moderate rises in imported costs. Employment is expected to increase by about 33,000 jobs a year during the 2005-2010 period. This performance can be explained by several factors: a relatively favourable macroeconomic context, limited wage increases, a - although very slow - reduction in working time and various measures taken to promote employment. Nevertheless, the fall in the unemployment rate should be very limited due to a considerable increase in the working population.

The FPB October update of the medium term outlook for Belgium does not yet take into account the measures taken within the framework of the 2006 budget.