Both confidence indicators and some hard data now suggest that economic activity in the euro area should register a moderate recovery during the last part of 2003. Even if risks are still present, they are more balanced than a few months ago.

During the last few months, confidence is rising again in Belgium. GDP growth is forecast to pick up slightly in the second half of the year, and amount to 0.9% in 2003. With a far less dynamic pace than was seen during the previous cyclical recoveries in 1996 and 1999, annual average GDP growth should amount to 1.8% next year.

This year, as a result of the stronger euro and the weakness of the euro area economy, net exports should make a very negative contribution towards economic growth (-0.9%). Real GDP growth should be exclusively driven by domestic demand (1.8%) as a result of the cutback in personal income tax rates and the improvement of business profitability. Next year, domestic demand should grow at the same pace as this year, but GDP growth should be more balanced.

A gradual improvement in domestic employment is not expected to take place until the last quarter of 2003. In response to this slowly improving labour market situation in 2004, the household savings rate should not begin to decrease until the second half of 2004. Next year, CPI inflation should be by 1.4%, as compared with 1.6% this year. This fall is inspired by the past appreciation of the euro and the moderate development of unit labour costs.