Economic activity in Belgium increased strongly during the second half of last year thanks to the net improvement in export growth as well as sustained internal demand. On average, GDP growth reached 2.5% in 1999, confirming the scenario of a short-lived slowdown between mid-98 and mid-99.
The upward trend in nearly all demand components will result in a positive carry-over effect for the year 2000. Moreover, leading indicators are so far pointing towards a further improvement in economic growth in the first half of the current year, with growth stabilising at a high level in the third quarter. This year, Belgian GDP growth should reach 3.2%. Internal demand will be boosted by sustained growth in private consumption, thanks among other things to a high job creation rate (+1.4%), and also by a positive contribution from stockbuilding towards economic growth (+0.3%). The contribution of external trade (+0.4%) will be favoured by the dynamism of world trade and the improvement in price competitiveness. The public sector borrowing requirement should diminish and nearly reach equilibrium (-0.1% of GDP), thanks to the fall in interest payments and the increase in the primary surplus.
The medium-term outlook for Belgium is pointing towards a GDP growth rate of 2.6% per year during the 2001-2005 period, mostly supported by exports and business investment. The economic fundamentals of the euro area should be the main driving force behind those prospects: fiscal consolidation should not require new measures and the slightly accelerated pace of inflation (around 2% in the medium term) in Europe should not threaten price stability and the low level of real interest rates. Despite the further significant decrease of the unemployment rate in the euro area, acceleration in wage inflation should be limited.
Annual employment growth in Belgium should be around 0.8% between 2001 and 2005. The labour force will still increase in spite of unfavourable demographic developments (the baby-boom generation is entering the 55-60 age range), thanks to higher participation rates among females and over-50s. The acceleration of wage inflation in Belgium should be broadly in line with the average of our three main trading partners. The pace of growth in consumer prices should be around 1.5% on average between 2000 and 2005. On the basis of a “no change in policy” scenario, the general government financing capacity should become positive from 2001 onwards. Compared to the budgetary target set out in the 2000-2003 stability program (surplus of 0.2% GDP in 2003), “cumulative budgetary margins” will reach 2.2% GDP in 2005.
The Population Division of the United Nations has presented its report “Replacement migrations” (published on 21st March, 2000). This report relies on demographic scenarios that imply significant ageing and diminution of population in most European countries. By advising European countries to resort to massive immigration to prevent the demographic structure from experiencing a dramatic increase in old-age dependency rates, the international organisation has in fact questioned the future of labour force resources and the sustainability of public pension schemes.
The significance of the demographic factor in assessing the long-term financial sustainability of public pension schemes is open to question. In the case of Belgium, every three years the FPB makes projections on the long-term budgetary implications of an ageing population. These projections are based on a much broader framework than the influence of demography alone, and they provide more reasonable results: the problems associated with the shortage in the labour force and the sustainability of legal pension schemes in the twenty-first century could be less acute than the United Nations suggests.
The FPB projections concerning the long-term sustainability of public finances as a whole are also based on demographic prospects, with the basic assumptions concerning the evolution of fertility rates, life expectancy and migrations being prepared by different national expert groups specializing in each of those fields. In the baseline scenario used in the last published demographic projections, net immigration flows sustained the Belgian population figures for the next 50 years, remaining at around 10,000 each year in the short-to-medium term and declining smoothly thereafter. This hypothesis contrasts with the unrealistically low net migration rates (even a nil rate in 2020) assumed in the baseline projections in the United Nations report. But, perhaps more importantly, the FPB long-term projections also take into account the following factors: socio-economic and macroeconomic variables, social policy and budgetary policy, as well as the regulatory parameters of the various social security schemes.
STU 2-00 was finalised on May 4th 2000.