The medium-term outlook for Belgium (cut-off date: April 30) points towards an average GDP growth rate of 2.2% during the 2005-2010 period, which is slightly higher than potential (2.1%). This pace of growth is expected to take place after a slowdown in economic growth in 2005 (1.7%) and a rebound in 2006 (2.6%). In both years Belgian economic growth should be slightly higher than in the euro area. Recent information makes the 2005 growth figure highly uncertain, with a significant downward risk.
Despite moderate wage increases, the average yearly growth rate of private consumption should reach 1.9% during the 2005-2010 period, particularly thanks to the increase in households’ disposable income (stimulated particularly by reductions in personal income tax and the rise in employment). Investment growth should reach 3% on average during the 2005-2010 period, mainly reflecting the increase in business investment but also an acceleration of public investment in 2005 and 2006. Growth in exports should be 5.5% on average and the contribution of net exports to GDP growth is expected to be 0.2%. Limited wage cost increases, lower oil prices as compared to the average level in 2005 and a negative output gap should allow inflation to remain around 1.8% in the medium term.
The development of employment should reflect the favourable macroeconomic context, the limited increases in wage costs and various policy measures. After the net creation of approximately 29,000 and 21,000 jobs in 2004 and 2005 respectively, about 40,000 jobs should be created every year during the 2006-2010 period. Between 2004 and 2010 industrial employment should fall by 51,000 persons and the number of jobs created in market services should exceed 270,000. Nevertheless, in view of the growth in the labour force (mainly in the 50-64 age group) the fall in unemployment will be limited to 50,000. The unemployment rate (broad administrative statistics) is still increasing in 2005 (from 14.4% to 14.6%), but it will subsequently fall to 12.9% in 2010.
Under the assumption of unchanged policy, the public accounts are expected to show a clear deterioration, with a net public sector borrowing requirement appearing in 2005 (0.5% of GDP) and widening to 1.5% of GDP in 2006 before gradually declining to 0.7% of GDP by the end of the projection period. Nevertheless, the total public debt to GDP ratio is still in decline, from 95.8% in 2004 to 82.6% in 2010.
Network industries play a pivotal role in the economy. They are service industries that produce the conveyance of people, goods and information along some physical infrastructure network. This process is essential for a modern, sophisticated production system. Moreover, network industries fulfil important social needs. In recent years and partly initiated by EU legislation, measures have been taken to reform their structure and the way they are operated in order to improve their performance. This Special Topic analyses the reform measures by applying OECD data and methods to the Belgian case. It quantifies past and anticipated reforms over the approx-imate period from 1998 to 2010. The analysis covers the railway, electricity, gas, telecommunications and postal industries. In 2003 these industries produced 5.5% of Belgian GDP and accounted for 4.0% of employment.
Network industries meet essential economic and social needs. When the fulfilment of these needs is left to the market, there is no guarantee that an optimal outcome will be reached. In the past, many network industries have therefore been monopolies under public control. This did not, however, guarantee an optimal level of efficiency. In recent decades a series of market reforms has therefore been initiated. These essentially allow for free entry and private investment but also build on mechanisms that safeguard the public interest. According to economic theory this kind of reform should improve efficiency by raising productivity, lowering prices and increasing output. The impact on employment is uncertain. The balance between productivity growth on the one hand and output growth on the other determines whether there is a net positive or negative impact on employment.
Measurement of market reform
To measure and predict the economic impact of the reform, there is a need to quantify the mostly qualitative information on reform measures. The OECD is one institution that has developed indicators for the extent of regulation. These industry-level indicators integrate information on vertical separation, market opening, public ownership and market structure into one index on a scale of 0 for the absence of regulation to 6 for complete regulation. It has built up a database covering the period from 1975 to 1998 and comprising seven network industries: railways, electricity, gas, telecommunications, postal services, air transport and road transport. An update for 1999-2003 may become available in the course of this year.
By applying the quantification method developed by the OECD, the FPB has produced a 2004 update for the first five of the seven above-mentioned sectors in Bel-gium. It has also produced two forecasts for the near fu-ture (±2010). One of these is based on rather prudent as-sumptions about further reforms while the other is more speculative. The results are summarised in Graph 1.
Reform in Belgian network industries
The Belgian railway sector is expected to remain the most regulated network industry, and to keep on fol-lowing the EU directives on railway reform strictly. There is free entry on the Belgian sections of the Trans European Rail Freight Network (TERFN), but only one entrant is active. In early 2005 a holding structure was created for the incumbent NMBS/SNCB. In this holding company there is a legal separation of infrastructure management and train services.
In 2006 and 2007, market opening for freight traffic will be completed. It is assumed that a few more operators will enter the market at that time. The index may then fall to 3.8, which is still as high as the index of the least regulated member state in 1998 (after the UK, see Graph 1). The speculative forecast is equal to the prudent forecast. There is no concrete sign of any reforms beyond opening the freight market.
Between the electricity and gas sectors there is little difference in evolution. In both sectors there is legal separation between the infrastructure networks and the other activities. Access prices are regulated as prescribed by EU directives: they are proposed by the network manager but have to be approved and published by the regulator. In Flanders there is free choice of supplier. The market share of the incumbent suppliers Electrabel and Distrigas is still around 90% for electricity production and gas imports, respectively.
In early 2006 a power exchange will be started up for the electricity sector. In 2007, market opening in Wallonia and Brussels will be completed for both sectors. It is expected that the market shares of the incumbents will remain high. In the prudent forecast they are assumed to remain at their present levels. In the speculative forecast they may fall significantly, but will remain above 50%. The indices could fall to 2.4 and 1.8, respectively. This is still higher than the UK and Swedish indices of 1998 and similar to the German index for 1998. [More in the publication ...]
STU 1-05 was finalised on 17 May 2005