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Article (21/05/2013)

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Economic forecasts 2013-2018

The expected recovery of economic activity in Europe and Belgium is part of a downwardly-revised growth scenario

World growth continued to slow down in 2012 (3.2% compared to 4.0% in 2011), notably as a result of the European debt crisis. Fears over a euro area breakup, edgy financial markets and restrictive budgetary policies have brought the euro area into recession (-0.6%) and caused a growth slowdown in the emerging economies. Throughout 2013, economic activity in the euro area should pick up very gradually but remain slightly negative on an annual basis (-0.3%).

In 2014, euro area growth should approximate 1.1%. World GDP should increase by 4.0%. Over the period 2015-2018, the average annual growth of the global economy should amount to 4.5%, compared to 1.6% in the euro area. 

Belgian economic growth is modest but higher than the euro area average

Although the Belgian economy and the euro area are recovering more or less simultaneously, Belgian economic growth should remain higher than the euro area average. Belgian GDP is estimated to have declined by 0.2% in 2012 and it should grow only slightly in 2013 (0.2%). Assuming unchanged policy and legislation, all the components of domestic demand and export should grow more strongly as from 2014. With merely 1.2% growth, Belgian GDP should register its best performance in three years in 2014. This recovery should be confirmed over the period 2015-2018, leading to average yearly growth of Belgian GDP of 1.7%.

Owing to positive and increasing net exports, the current account balance surplus should increase from 1.4% of GDP in 2013 to 2.8% of GDP at the end of period.

Inflation cools down markedly

Belgian inflation, as measured by the national consumer price index (NCPI), reached 2.8% in 2012. Inflation should slow down in 2013 and become lower than in the euro area (with an increase limited to only 0.9%). The drop in energy prices, reinforced by a series of measures taken by the federal Government, is the main cause of this slowdown. Subsequently, inflation should remain relatively low (1.2% in 2014 and 1.6% on average during the period 2015-2018). Given the freeze of wages before indexation and further reductions in social security contributions, nominal hourly labour costs should only grow by 1.4% this year and 1.1% in 2014. However, as a result of very weak productivity gains in 2013 and 2014, unit labour costs should increase by 1.3% and 0.6% respectively.

As from 2015, gross hourly wages before indexation should increase by 0.6% on average and nominal labour costs by 2.1%1. With market sector productivity gains approximating 0.9% per year, real unit labour costs should grow by 1.2% per year on average over the period 2015-2018. 

Employment registers near zero growth in 2013 and gradually picks up afterwards

Despite the unfavourable economic climate and the decrease in employment in the public sector, total domestic employment should not shrink this year, as a result of stagnating hourly productivity. In the market sector, manufacturing industry should lose nearly 10 000 jobs while services should gain 17 000 jobs. Subsequently, employment growth in the market sector should accelerate gradually to 1.1% per year on average from 2016 onwards. Over the entire projection period, total domestic employment should grow by 172 000 units. Market services should remain the main driver of that increase (+211 000) while manufacturing industry should lose 36 000 jobs. The employment rate as defined in the context of the EU 2020 strategy should increase from 67% in 2013 to 68.4% in 2018, a figure well below the 73.2% objective for 2020.

Unemployment is expected to rise substantially over the period 2013-2015 (+52 000), as job creation should only start to increase slowly, while the labour supply should increase considerably. The unemployment rate (FPB definition based on administrative data) should increase from 12.1% in 2012 to 12.8% in 2015. From 2016 onwards, the acceleration of employment growth and the slowdown of labour force growth should lead to a decline in unemployment (-50 000 over the period 2016-2018) and the unemployment rate (11.7% in 2018). Finally, as measured by the Eurostat definition, which allows international comparisons, the unemployment rate should amount to 7.8% in 2018, compared to 7.6% in 2012.

General government deficit under 3% of GDP in 2013

Despite the weak economic growth and based on the information available at the closing date of these forecasts, the general government deficit should drop from 3.9% of GDP in 2012 to 2.9% of GDP this year, owing to the impact of the recapitalisation of the Dexia Group in 2012, the fall in local government investments and the restrictive budgetary stance at the different levels of government.

Assuming unchanged policy and legislation, the general government deficit should increase to 3% of GDP in 2014, mainly as a result of the non-recurrent nature of certain measures taken in 2013. The deficit should then drop from 2.9% of GDP in 2015 to 2.5% of GDP in 2018 and thus still remain within range of the excessive deficit procedure threshold. The structural deficit should even increase at the end of the period, partly cancelling the progress made in 2012 and 2013. Indeed, the growth in pension and health care expenditure clearly exceeds potential GDP growth (contrary to most other public expenditures, which have adopted a rather moderate growth rate since the crisis). Therefore, significant efforts will be necessary to follow the pathway of the stability programme, in particular the 2015 balanced budget objective.

At Entity 1 level, social security should have a balanced budget over the entire projection period, assuming that the special balance transfer from the federal government to social security is maintained. The gradual increase in that transfer keeps the federal government deficit from shrinking. The deficit should, therefore, remain relatively stable around 2.9% of GDP over the entire period. At Entity II level, the communities and regions sub-sector should register a slight deficit in 2013, which should gradually disappear and become a 0.4% of GDP surplus at the end of the period. The local authorities should remain balanced until 2016 and be slightly in deficit in the build-up to the local elections.

Subject to additional debt control measures that could be taken in the course of this year, public debt should continue to rise and amount to 100.9% of GDP in 2013. In the medium term, the debt ratio should slightly decrease and fall below 100% of GDP in 2018.

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