Compared to the forecasts of last September, the growth of the European economy for 2017 is revised slightly upwards. Against this backdrop, Belgian GDP growth for 2017 is raised from 1.2 % to 1.4 %. Moreover, Belgian growth in 2016 and 2017 seems to be more labour intensive than expected. Higher oil prices would push inflation just above 2% in 2017
In accordance with the law of 21 December 1994, the National Accounts Institute (NAI) has communicated the data of the economic budget to the Minister of Economy. These macro-economic forecasts will serve as a basis for the 2017 budget review.
An international context subject to significant political uncertainty
In 2016, global economic growth remained subdued but is expected to pick up slightly this year, driven by the United States (2.3 % growth) and the emerging countries. However, US trade policy is shrouded in uncertainty. If certain measures prompt trade disputes, world trade might be adversely impacted. Besides, an excessively rapid increase in the American policy interest rate might result in capital flight from emerging economies.
Recent data and confidence indicators show that up to now the European economy has performed better than was anticipated just after the Brexit vote in June 2016. The negative impact on the British economy has been limited so far, but increasing import prices could hamper British growth this year. Moreover, elections to be held in several Member States of the euro area are a source of policy uncertainty.
Growth in the euro area as a whole should reach 1.5 % in 2017, following 1.7 % in 2016.
In 2017, Belgian GDP growth will strengthen, driven by dynamic domestic demand
The Belgian economy grew strongly in the fourth quarter of 2016. This year, quarterly growth should hover between 0.3% and 0.4% due to dynamic domestic demand, while the contribution of net exports to economic growth is expected to be zero. Belgian economic growth should therefore speed up somewhat on a yearly basis, from 1.2% in 2016 to 1.4% in 2017.
Just as in 2016, Belgian export growth is backed by the depreciation of the Euro and by the positive evolution of domestic costs, which is directly attributable to the measures aimed at limiting labour costs. The rise in export volumes in 2016 and 2017 (5.8 % and 4.5 % respectively) is sizeable, but can be explained by the reorganisation of an international company operating on the Belgian market. As a result, this company has substantially increased its import and export activities, albeit without impacting GDP. The external account surplus increased to 0.7 % of GDP in 2016, but is expected to fall to 0.5 % of GDP this year as a result of higher oil prices and a zero contribution of net exports to economic growth.
The real disposable income of households is estimated to have increased by 1 % last year. On the one hand, purchasing power was backed by a significant net job creation (see below) but at the same time it was curbed down by a further drop in property incomes. In addition, a number of measures (like the increase in flat-rate professional expenses) had a positive effect on purchasing power, although this was partially offset by – among others – a rise in VAT on household electricity prices, an increase in other indirect taxes and the index jump. Owing to a weak first quarter, the volume growth in private consumption did not exceed 0.7 % in 2016 and the household saving ratio went up. The rise in household purchasing power should also be limited to 0.9 % in 2017. Nevertheless, consumer expenditure should catch up and rise by 1.4%, partly due to the recent improvement of consumer confidence, which is particularly sensitive to labour market conditions. The strong volume growth (5.4 %) in residential investment in 2016 mainly reflects a favourable starting point, i.e. the sharp increase in housing construction in the fourth quarter of 2015. Supported by financing conditions, which are still favourable, household investment should increase by 2.1 % in 2017.
In 2016, volume growth in business investment (1.5 %) was strongly negatively influenced by the considerable phasing out of exceptional transactions that boosted business investment in 2014 and 2015. Excluding these transactions, business investment rose by 5.4 %. The industrial capacity utilisation rate is currently above its historical average, increasing the need for expansion investment. Combined with a further increase in profitability and easy credit conditions, this should result in a strong investment growth in 2017 (3.2 %).
Taking into account all known measures, annual volume growth of public consumption should remain limited to 0.2 % in 2017. Increased investment activity by local authorities in the run up to the local elections of 2018 should lead to an acceleration in public investment growth to 3.7%.
Measures aimed at reducing labour costs make economic growth more labour-intensive
Total domestic employment grew by 1.3 % last year and is expected to rise further by 1.1 % in 2017, resulting in a net creation of respectively 59 000 and 51 000 jobs. Labour productivity even fell in 2016, while it is projected to rise only slightly in 2017. Wage-earning employment in the market sector is (especially in 2016) positively impacted by measures designed to limit labour costs. Combined with a relatively stable economic growth, this should lead to more than 86 000 additional jobs over both years. The number of self-employed is expected to grow by 24 000 people in the same period, while public employment in 2017 is projected to decline slightly.
Due to the further increase in the labour force, the number of unemployed (including wholly unemployed non-job-seekers receiving benefits) is expected to decrease by 58 000 people in total over the 2016-2017 period. The harmonised unemployment rate (Eurostat definition) is expected to go down from 8.5 % in 2015 to 7.6 % in 2017.
In 2017, inflation is expected to be just above 2 %
Belgian inflation, as measured by the year-on-year growth rate of the national consumer price index, decreased to levels of 0.3 % in 2014 and 0.6 % in 2015, mainly as a result of the drop in oil prices. In 2016, the year-on-year growth rate of oil prices was negative as well. Yet inflation accelerated to 2 % on average. This is partly due to a strong increase in electricity prices after a number of taxes and levies were introduced or raised and after the withdrawal of the so-called ‘free KWh’ for households in Flanders.
Inflation reached 2.7 % in January 2017, but is expected to gradually decrease in the coming months as the year-on-year growth rate of oil prices slows down and the upward pressure, resulting from measures, that increased electricity prices in 2016, disappears. In 2017, the measures aimed at limiting labour costs should cool down underlying inflation, but higher oil prices, should nonetheless result in an inflation rate of 2.1%, a level similar to last year's.
The increase in the health index, which is not affected by price developments for petrol and diesel among others, should slow down in 2017 (1.7 %) compared to 2016 (2.1 %). According to the monthly forecasts of the Federal Planning Bureau for the development of the health index, the current pivotal index for public wages and social benefits (103.04) should be exceeded in June 2017.