STU 03-98 : Special Topic - Declining replacement rates in the legal pension scheme for wage-earners [ Short Term Update 03-98 - 16/07/1998]

Belgian GDP grew by 2.9% in 1997. GDP growth should hardly be reduced this and next year: the FPB expects a growth rate of 2.8% in 1998 and 2.6% in 1999.

So far, the FPB expected the negative impact of the Asian crisis to be neutralised by a more dynamic domestic demand. While exports do actually slow down, it seems that domestic demand more than compensates for this.

The good figures for domestic demand in 1998 concern mainly private consumption. They are influenced by the concentrated purchases of cars after the biannual Motor Show but also by a number of other special factors positively affecting household disposable income. These will not be present in 1999 so that smaller growth rates for real disposable income as well as private consumption are expected.

Employment creation should contribute substantially to the income growth of households during 1998 and 1999. For both years, employment should increase by about 45,000 people (or about 1.2%), which is considerable compared to the past seven years.

About a quarter of the job creation can be attributed to special programmes, which are mainly taking place in enterprises. Moreover, wage moderation, as well as further cuts in employers’ contributions to social security contribute to a more labour-intensive growth and an improvement of competitiveness.

The business investment rate should continue to climb, but remains relatively low compared to the end of the 80's.

The wage evolution in 1999 remains dependent on the “Wage norm”. Wage moderation in the neighbouring countries constraints the wage evolution in Belgium. Gross hourly wages in the private sector are expected to increase by 1.2% in real terms in 1999. The risk of wage inflation is therefore limited, even though labour market shortages could emerge.

Somewhat stronger import price increases and a slightly positive output gap lead to a small rise in the inflation rates in 1999 (1.3%, compared to 1.1% in 1998). Interest rates should also slightly increase in the Euro zone as well as in Belgium.