This year, the Belgian economy should register an increase in GDP of 2.7%. In 2008, economic growth is expected to slow down to 2.1%.
In 2006, Belgian exports grew significantly slower than the relevant export markets. Belgian exporters thus suffered from important losses of market share. Despite a steady deceleration of growth in the relevant export markets this year and next year, export growth should accelerate somewhat. Consequently, losses of export market shares should be more in line with their historical trend. The current account balance has worsened since 2003 due to the continued rise in oil prices. In 2007 and 2008, the slower increase in oil prices and the appreciation of the euro should limit the decline of the current account balance to 0.1% of GDP per year.
Domestic demand growth, which is mainly determined by the evolution of private consumption and business investment, should amount to 3.2% this year and 2% next year. In 2007, private consumption will benefit from a strong rise in employment and in property income, while business investment will be stimulated by the high capacity utilisation rate and the ongoing rise in profitability. Next year, private consumption growth should decelerate due to a smaller rise in real disposable income and less favourable demand prospects should weigh on business investment. Domestic employment should increase by, on average, 61,300 persons in 2007 and 44,200 persons in 2008. As the number of jobs is growing faster than the labour force, broad administrative unemployment is expected to decrease by 57,800 persons this year and 20,400 persons next year. The harmonised Eurostat unemployment rate (which is calculated by means of labour force surveys) is expected to fall from 8.2% in 2006 to 7.2% in 2008.
The evolution of inflation, as measured by the national index of consumer prices, is strongly influenced by the evolution of natural gas prices, which should decline in 2007 and rise substantially in 2008. Consequently, inflation should amount to 1.7% this year and 2.2% next year.
STU 3-07 was finalised on 5 October 2007.
Special topic : Regional labour market dynamics in Belgium
Over the last few years, policy analyses with a regional component have been attracting growing interest in Belgium, as in many other European countries. An important element in this context is the description and analysis of regional differences in labour market developments. In this special topic, we try to get some insight into the factors explaining differences in regional employment growth in Belgium from a long-term point of view.
Between 1970 and 2005, employment (in number of persons) increased by 0.4% on average per year in Belgium as a whole. Looking at this at the level of the 43 administrative regions (the so-called "arrondissementen/arrondissements" corresponding to the Eurostat NUTS3 level), annual employment growth varied between -0.7% and 2.0% over the same period, with 7 regions experiencing a growth rate above 1%, while 6 regions had to contend with a fall in their employment level. This leads to the conclusion that large regional disparities in employment growth have occurred in Belgium over the past 35 years.
Graph 1 - Employment growth at NUTS3 level: 1970-2005 annual growth rates in %
Source: NBB, NIS/INS, calculations FPB
Trying to find out what have been the underlying reasons for these significant uneven regional employment dynamics is a very complex job. In the extensive theoretical literature concerning this issue, a long list of possible explanatory factors can be found. Among the most cited are the industry structure of the economic activity, the quantity and quality of labour supply, the extent of innovative activity, geographical location, accessibility and the availability of infrastructure, of other business support services and of natural resources.
The analysis that follows first examines the extent to which differences in regional employment developments can be attributed to the industry mix on the one hand and other, so-called region-specific characteristics on the other hand. This will be done using a classical shift-share analysis. In the second stage, we will try to identify the importance of the quantity of labour supply in the list of region-specific characteristics.
Shift-share analysis is a (purely statistical) technique often used to analyse trends in regional job growth. It allows identification of the parts of regional employment growth disparities that can be attributed to regional differences in industry mix. A region, for example, with a relatively high proportion of employment in a fast-growing industry (such as services), is expected to experience a faster employment growth than a region which is specialised in a slow-growing or even declining industry, such as manufacturing. Differences between this expected (industry-mix-based) outcome and the realised employment growth are then attributed to (at this stage still unidentified) 'region-specific characteristics'.
Graph 2 - Shift-share analysis 1995-2005: employment and industry mix annual average growth rates
Source: NBB, calculations FPB
Graph 2 shows the results of a shift-share analysis based on employment data for Belgium at the NUTS3 level over the period 1995-2005. It compares the observed employment growth between 1995 and 2005 to the employment growth for each region based on its unique industry mix. The plotted regression line shows that, as expected, there is a positive relation between the two outcomes. The scatter plot, however, indicates that the relationship is rather weak. A favourable industry mix does not guarantee above-average employment growth (this is only true in 6 out of 15 regions), and 9 out of 28 regions perform better than on average in spite of an unfavourable industry mix. All this leads to the conclusion that region-specific factors play a more prominent role in the explanation of regional employment growth differences than the industry mix. This conclusion confirms earlier findings for a large set of countries.
[More in the publication - see pdf file]