Short Term Update 02-13 : Special Topic - Forcasting Belgian GDP in times of international crisis [ Short Term Update 02-13 - 21/05/2013]

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De Short Term Update (STU) was een driemaandelijkse nieuwsbrief met een actueel overzicht van de Belgische economie en de lopende studies van het FPB.  De reeks is gesloten sinds 2015.

Headlines Belgian Economy

Economic activity in the euro area should be down in 2013 (-0.3%), as in 2012 (-0.6%). A recovery should occur in 2013 and lead to growth of 1.1% in 2014, which should strengthen moderately in the medium term (+1.6% at the end of projection period). The evolution of economic activity in Belgium reflects sluggish European growth. Nevertheless, the growth of the Belgian economy should exceed average growth in the euro area: it should amount to 0.2% in 2013, 1.2% in 2014 and then gradually speed up (+1.9% in 2018).

In spite of the unfavourable economic climate, the level of employment should not shrink in 2013. Employment growth should be modest in 2014-2015 and slightly accelerate afterwards. Employment in manufacturing industry should further decline. Job creation in market services helps global employment to remain stable in 2013 and is the key driver of the projected rise in employment. Unemployment is expected to increase substantially over 2013-2015. From 2016 onwards, the acceleration of employment growth and the slowdown in labour force growth should allow a decrease in unemployment. The unemployment rate should then approximate its pre-crisis level again in 2018. Belgian inflation reached 2.8% in 2012, should slow down in 2013 and become lower than inflation in the euro area (only 0.9%). The drop in energy product prices, which has been intensified by a series of measures by the federal government, is the main cause of this slowdown. Subsequently, inflation should remain relatively low (1.2% in 2014 and 1.6% afterwards).

Total greenhouse gas emissions should remain far below the threshold laid down under the Kyoto Protocol for the 2008-2012 period. Nevertheless, the ceiling set for the non-ETS sectors was probably slightly exceeded. Reducing emissions and increasing the share of renewable energy by 2020 remain a real challenge.

Despite the weak economic growth, 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. Therefore, significant efforts will be necessary to follow the pathway of the Stability programme.

STU 2-13 was finalised on 21 May 2013

Special Topic - Forcasting Belgian GDP in times of international crisis

The Federal Planning Bureau (FPB) is responsible, within the National Accounts Institute, for producing the economic budget, i.e. the macroeconomic forecasts used to establish the federal government budget and perform budgetary control exercises. In order to ensure transparency, ex post evaluations of the quality of these forecasts are undertaken at regular time intervals. In the latest assessment, the one-year-ahead forecast errors for economic growth in 2009 and, to a lesser extent, in 2010 appeared as outliers. In this article we analyse the impact of world trade forecast errors on Belgian GDP forecasts.

Setting the scene

The economic budget of September 2008 was finalised on 10 September and foresaw a deceleration in Belgian GDP growth from 1.6% in 2008 to 1.2% in 2009. The collapse of Lehman Brothers just a few days later created a worldwide panic on financial markets with devastating consequences for international trade. The year 2009 turned out to be the most severe recession recorded in Europe since World War II. In Belgium, GDP shrank by 3.0%, according to the first release of the National Accounts. This exceptionally strong downturn and the elevated levels of uncertainty caused forecasting institutions to be extremely cautious for 2010. Accordingly, in the economic budget of September 2009, Belgian GDP was projected to grow by a mere 0.4% in 2010. Against all the odds, a robust growth of 2.2% was recorded. These forecast errors, calculated as the difference between forecasts and outcomes, are put in perspective in Graph 1. The forecast error for the year 2009 appears to be by far the largest made since the launch of the economic budget in 1994. For the year 2010, the magnitude of the error is, in absolute terms, more in line with those recorded during the period 2000-2003, but it nevertheless represents the greatest underestimation of growth in the sample.

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