Since mid-2009, the world economy has been recovering from one of the worst post-war economic crises. As of mid-2010, world economic growth should slow down as stimulus measures are gradually reduced or phased out and stock building becomes less of a support to economic growth. Moreover, western economies now face major challenges in restoring health to public finances. As a result, the international context remains surrounded by major uncertainties, with downside as well as upside risks.
During the second half of 2009, the Belgian economy posted positive quarterly growth rates driven by recovering exports and an acceleration of private consumption growth. In 2010Q1, the economic recovery was, however, interrupted due to a drop in construction activity owing to the cold weather. Strong GDP growth in 2010Q2 (0.9%) was in turn partly due to a catch-up by the construction sector, but exports boomed as well because of the strong growth of the German economy. In line with the international business cycle, qoq GDP growth should decelerate to 0.3% on average during the second half of 2010. In the course of 2011, export growth should pick up again, resulting in average quarterly GDP growth of 0.5% in the second half of the year. On an annual basis, GDP growth should amount to 1.8% in 2010 and 1.7% in 2011.
The past recession has had a smaller impact on domestic employment than initially expected. A temporary strong decrease in hourly labour productivity and in average hours worked per person softened the downward impact on the number of employed persons. Consequently, the net decrease in employment in 2009 was limited to 17 500 persons (-0.4%). Hourly labour productivity and average working time should catch up in the course of this year and next year. Combined with a modest economic recovery, the net increase in employment should therefore remain limited to 10 100 persons in 2010 and 4 700 in 2011. The harmonised Eurostat unemployment rate (which is based on labour force surveys) is expected to increase from 7% in 2008 to 9% in 2011.
During recent years, Belgian headline inflation (as measured by yoy growth of the national index of consumer prices) has primarily been influenced by the evolution of raw materials prices. As from May 2010, underlying inflation has also been creeping up. In the course of the next year, underlying inflation should remain on an uptrend. Nevertheless, consumer price inflation is expected to decelerate somewhat because of the quasi-stabilisation of energy prices. On an annual basis, inflation should drop from 2.1% in 2010 to 2% in 2011.
STU 3-10 was finalised on 1 October 2010
Short Term Update 03-10 [Contributor - 01/10/2010]The new medium-term economic outlook for Belgium has been drawn up in an international context that is heavily influenced by the financial crisis and the deep economic recession this has brought about. Belgian GDP should fall by nearly 4% in 2009, followed by zero growth in 2010 as the crisis subsides. In the wake of a worldwide recovery, Belgian GDP growth should start accelerating from 2011 onwards, resulting in average growth for the period 2011-2014 (2.3%) that is similar to the average of the past twenty years. Note that the global economic situation is beset with many uncertainties and, therefore, the outlook is surrounded with considerable risks, especially for the short term.
Households are expected to raise their precautionary savings dramatically in 2009, thus lowering their consumption compared to last year (-0.6%). Strongly unfavourable demand prospects, combined with a sharp drop in profitability and deteriorated external financing conditions will lead to a sharp contraction in business investment (-7.5%). Domestic demand should recover slightly in 2010 and more markedly from 2011 onwards. The volume of Belgian exports is expected to go down for two years in a row (-8.9% in 2009 and -0.6% in 2010) and the contribution of net exports to GDP growth should be largely negative. From 2011, Belgian export growth should be close to its historical growth rate (4.8%). After a peak in 2008 (4.5%), the inflation rate should fall to 0.3% on average in 2009. In the medium term, inflation is expected to pick up again, but to remain below 2%.
The effects on employment of the sudden fall in activity should materialise progressively: domestic employment should drop on average by 37 000 jobs this year and by 53 000 jobs next year. The recovery in 2011 should not be labour-intensive and employment is only expected to increase significantly from 2012 onwards (by a little more than 43 000 jobs a year on average). This evolution of employment, combined with an increase in the labour supply, should lead to a rise in unemployment of 194 000 units from 2009 to 2011. In the next three years, the unemployment rate (broad administrative definition) should go up from 11.8% to 15.2%. As from 2012, the unemployment rate should gradually decrease to reach 14.5% in 2014.
Under the assumption of constant policy, public sector accounts are expected to deteriorate markedly, with a net public financing requirement of 4.3% of GDP in 2009, widening to 5.6% of GDP in 2010. The end of the recession will not lead to a reduction in the deficit, which should peak at 6.1% of GDP in 2012 before slightly improving afterwards. As a result, Belgian public debt should again experience a snowball effect, going up from 89.3% of GDP in 2008 to 106% of GDP in 2014.
STU 2-09 was finalised on 27 May 2009
Short Term Update 02-09 [Contributor - 10/06/2009]
Federal Planning Bureau
