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In October, the FPB prepared an update of its medium-term economic outlook of May 2010. This new outlook covers a longer period (2010-2020) than usual because it was drawn up in the framework of the macroeconomic surveillance process under the Europe 2020 Strategy, with a view to the preparation of the draft Belgian National Reform Programme.
This new outlook for Belgium is based on an international context that is marked by a recovery that should emerge in 2010-2011 and even gain momentum in the medium term. Nevertheless, the uncertainty surrounding these forecasts continues to be higher than before the financial crisis. Large budget deficits and global imbalances continue to threaten the stability of worldwide economic growth.
Yearly Belgian economic growth should amount to approximately 1.8% in 2010 and 2011 (based on our September forecast described in STU 3-10) and fluctuate around 2% thereafter. After a sharp decline in 2009, domestic demand has been expected to rise again in 2010, despite the on-going fall in business investment. As of 2011, domestic demand should rise at an average yearly rate of 1.8% as its various components regain their trend-based growth. Belgian exports, which fell by 11% in 2009, have recovered significantly in 2010. Thereafter, exports should grow at a rate close to its historical average. The contribution of net exports to GDP growth should be positive for the whole projection period (0.3-0.4 %-points on average for 2012-2020). Employment seems to have already experienced a moderate recovery in 2010.
Employment should increase further in 2011 and 2012, but at a limited pace as employers try to push up labour productivity and average working time from the historically very low levels that they reached in 2009. From 2013 to 2015, employment growth should become more sustained before gradually dropping again towards the end of the forecast. Employment as a percentage of the population aged between 20 and 64 years should initially fall from 68% in 2008 to 66.9% in 2010, but should recover to 68.2% in 2015 and 69.8% in 2020, a rate still well below the 75% target set by the EU. Unemployment (broad
administrative definition) is expected to peak in 2012 at a level that is 103 000 units higher than in 2008. From 2013 onwards, unemployment should slowly decline and reach 591 000 units in 2020.
The general government budget deficit should shrink from 6% of GDP in 2009 to 4.8% of GDP in 2010, 4.6% in 2011 and 4.5% in 2012. Thereafter, the deficit should remain almost constant up to 2020. A further and considerable fiscal adjustment is thus necessary to cut back the deficit to 3% of GDP in 2012 and achieve a balanced budget in 2015 in accordance with the Stability Programme of January 2010.
STU 04-10 was finalised on 22 December 2010.
In October, the FPB prepared an update of its medium-term economic outlook of May 2010. This new outlook covers a longer period (2010-2020) than usual because it was drawn up in the framework of the macroeconomic surveillance process under the Europe 2020 Strategy, for the preparation of the draft Belgian National Reform Programme. As in the outlook of May 2010, the starting position for Belgium is a large negative output gap and a severe public deficit as well as a large unemployment rate. Thanks to average GDP growth exceeding the potential growth during the major part of the projection period, the output gap should be gradually reduced and is expected to disappear before 2020. The unemployment rate should also decrease. In the absence of new policy measures, fiscal imbalance is likely to persist until the end of the projection.
International organisations currently assume a recovery of the world economy, which will affirm itself in 2010-2011 and even gain momentum in the medium term, but remain rather modest in the euro area (GDP growth rate of 2.3% per year on average during the period 2012-2015). The recovery implies that the large output gaps observed in 2010 should close in all OECD countries by 2015. In the longer term (2016-2020), the scenario chosen (see OECD Economic outlook of June 2010) assumes a gradual slowing of potential growth, mainly due to a reduced contribution of demography. This should result, for instance, in average GDP growth for the euro area being limited to 1.7% for the period 2016-2025.
In such a scenario, the yearly growth of the Belgian economy should amount to approximately 1.8% in 2010 and 2011 and slightly exceed 2% for the years 2012 to 2015, i.e. a similar rate to that observed on average over the last twenty years. After this (period 2016-2020), GDP growth would be limited to 2% per year. This is in accordance with a gradual convergence between real GDP growth and the evolution of the computed potential GDP.
After a drop in 2009, domestic demand has started rising again slightly in 2010, thanks to an increase in private consumption (notably explained by a falling savings rate) and despite a persistent fall in business investments. As of 2011, domestic demand, as its various components regain their trend-based growth, should increase at an average yearly rate of 1.8%.
After a fall in 2009, the volume of Belgian exports has recovered significantly in 2010 (+7.8%) and should grow again in 2011 (+3.9%). From 2012 onwards, Belgian exports should again reach a level close to their historic growth rate (4.7% on average for the years 2012-2015 and 4.4% on average for the period 2016-2020). The discrepancy between the growth of potential export markets (+6.8% on average for the period 2012-2015 and 6.2% on average for the period 2016-2020) and the real growth of exports reflects the persistent loss of significant market shares in the medium term. The contribution of net exports to GDP growth should be positive during the whole projection period (0.3-0.4 %-points on average for 2012-2020). The external balance should improve slightly again in the medium term so that a surplus equivalent to 3.6% of GDP should be registered at the end of the projection.
Despite the evolution of international oil and other commodity prices (which are assumed to rise by 1% per annum in real terms) and wage costs in acceleration (but the latter compensated by higher productivity gains), inflation should be more or less in line, for the medium term, with the target of 2% fixed by the monetary policy.
Domestic employment dropped sharply in 2009, but according to the latest figures seems to have already experienced a moderate recovery in 2010. Employment should increase further in 2011-2012, but at a pace that is expected to still be limited (35 000 extra jobs over these two years) as employers reduce labour hoarding and average working time recovers from the historically very low levels reached in 2009. From 2013 to 2015, employment growth should become more sustained (attaining on average 1.0% per year), before gradually dropping again towards the end of the forecast period (0.5% growth in 2020). Employment as a percentage of the population aged between 20 and 64 years should initially fall from 68% in 2008 to 66.9% in 2010 but should recover to 68.2% in 2015 and 69.8% in 2020, a rate still well below the 75% target set by the EU.
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Macroeconomic forecasts and analyses > Short-term forecasts and business cycle