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In the October update of the FPB medium-term outlook for Belgium, GDP growth reaches an average of 2.3% for the 2006-2011 period. This development will be driven by both domestic demand and exports, although the contribution of net exports to economic growth is expected to be limited. The growth of private consumption (1.9% on average) should be in line with the growth of household disposable income in real terms (2% on average). Gross fixed capital formation should grow by 2.7% (on average). The structural loss of export market shares should remain significant, with exports increasing by 5.5% a year on average, compared with a 6.8% growth in our potential export markets.
After climbing to 2.4% in 2006 because of high energy prices, inflation (as measured by the private consumption deflator) should fall below 2% in the medium term, mainly because of limited wage growth, the increase in interest rates and moderate rises in prices of imports (notably owing to the decrease in oil prices). Total employment is expected to increase by about 38,500 jobs a year during the 2006-2011 period, despite new job losses in manufacturing. The factors behind this performance are: a relatively favourable macroeconomic context, limited wage increases, a further small reduction in working time and various measures taken to promote employment. Nevertheless, the fall in the unemployment rate is expected to be limited due to the substantial rise in the labour force. However, at the end of the projection period - when baby-boomers will leave the labour force on a massive scale - the growth of the labour force should lose momentum, allowing the decrease in the unemployment rate to accelerate.
All in all, economic growth should be stronger for the next six years compared to the previous six years, leading to the same average GDP growth rate during the period 2000-2011 as during the period 1990-1999. At the same time, the pace of employment growth should have nearly doubled (yearly 35,000 on average during the same period 2000-2011, against slightly less than 20,000 yearly during the former decade), reflecting a considerable decline in productivity gains.
This medium term outlook does not take into account the measures taken within the framework of the 2007 budget.
STU 4-06 was finalised on 11 December 2006.
The object of this article is to present the Belgian action plan on investing in knowledge and innovation and the main measures already taken as explained in the 2006 Belgian progress report to the National Reform Programme (www.be2010.eu). The FPB participates in the preparation of these reports.
The long-term growth performance of Belgium depends on many factors, one of them being its ability to innovate. For this reason, the federal and regional governments have put innovation policies high on the political agenda.
Graph 1 shows the relationship between the Summary Innovation Index (SII) as developed by the European Commission and an economic performance indicator (the annual growth rate over the 2000-2005 period of total factor productivity). The SII is a composite indicator taking into account innovation drivers, knowledge creation, entrepreneurship, applications and intellectual property. The use of a composite indicator is open to criticism, but it has the advantage of bringing together many different aspects of innovation. The total factor productivity (TFP) indicator is an indication of the technical progress of the economy (brought about by inter alia innovation) and influences productivity and economic growth positively.
Countries with high innovation scores also have a strong economic performance. This is shown here by the performance measured by TFP-growth.
In a European context, Belgium is considered to be a slightly above-average performer. It is particularly strong in innovation drivers (such as tertiary education or broadband penetration) and knowledge creation (e.g. the amount of business-funded research done in universities or the public funding of innovation). On the weaker side, innovation applications should be mentioned (the share of high-tech exports or the share of employment in medium- or high-tech manufacturing).
The amount of R&D expenditure in the public and private sector in Belgium falls short of the 3%-objective. Recently, the share of R&D expenditure by the business sector has been falling. The provisional figure for total R&D expenditure for 2004 is 1.93% of GDP. In order to attain 3% in 2010, R&D expenditure has to increase by 1.07% of GDP, which implies considerably higher growth rates than those observed in the past 10 years.
Innovation policies are broader than research policies, which implies that many political bodies and actors are involved in the design of an innovation policy.
The renewed Lisbon Agenda (2005) puts a lot of emphasis on innovation policies in its overall aim to improve the growth performance and jobs creation in the European Union. “Integrated Guidelines” were drawn up in the area of innovation and in other areas and became the central instrument for coordinating economic policy in the EU. Within the context of the renewed Lisbon Agenda, each Member State has to submit a National Reform Programme (NRP) every three years, in which the Member State draws up the political priorities to achieve the Lisbon goals. In the framework of these programmes, the Member States of the EU will ensure the transposition of the European objectives to the national level. Indeed, the major part of economic policy is determined at the national, and not the European, level.
The first programme of this kind, drawn up in October 2005, covered the period 2005 – 2008. In the course of the second and third years of the cycle (2006 and 2007), progress reports are intended to pinpoint the priorities that have already been achieved and the way in which these priorities have possibly changed. In 2008, new Integrated Guidelines will be fixed and new priorities will be included in the NRPs. The Belgian progress report was approved in October 2006. It gives a description of the measures taken from October 2005 to October 2006 and announced in the Belgian NRP 2005-2008.
STU 4-06 was finalised on 11 december 2006
Macroeconomic forecasts and analyses > Short-term forecasts and business cycle