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In October, the FPB updated its medium-term outlook for Belgium until 2007. This projection is pointing towards a GDP growth of 2.5% on average from 2003 to 2007. This development can be largely accounted for by domestic demand, whereas the role of (net) exports is expected to be more limited. Private consumption should be more dynamic during the forecasting period than during the nineties thanks to a favourable development in households’ disposable income (stimulated especially by reductions in personal income tax). The growth in gross fixed capital formation should attain an average of 2.9% during the period 2003-2007, notably reflecting the expansion in business investment. Export growth should be 5.1% on average: the structural loss in export market share should be confirmed and the contribution of net exports to GDP growth is expected to decline.
The inflation rate should be below 2% in the medium term. Assuming no shocks on commodity prices, the main domestic factors behind this moderate inflation are wage increases compatible with productivity gains, cuts in social security contributions and the extension of production capacity.
Employment should show a gradual improvement: an increase of 33,000 jobs on average should be observed during the 2003-2007 period (as compared with an increase of 40,000 jobs, on average, during the 1996-2000 period). However, a large proportion of the labour expansion should be absorbed by an increase in the labour force. Therefore, the unemployment rate in a broad sense should only decrease from 13.5% by mid-2002 to 13.2% in 2007.
Assuming no policy change but taking into account (as far as possible) the measures decided within the framework of the 2003 budget, the financing capacity of public administrations should be close to balance between 2003 and 2006 and a small surplus would be observed in 2007. Taking into account the computed output gap and the resulting cyclical budget component, the structural (cyclically adjusted) balance would be positive but slightly declining from 2002 onwards.
The objective of a positive financing capacity (0.5% of GDP in 2005 as mentioned in the new Stability Program for Belgium) is not expected to be reached without additional budgetary measures. However, the total public debt to GDP ratio should continue its decline, but at a slower pace if compared with the 2001 forecast. The decrease should represent about 21% of GDP between 2001 and 2007.
Short Term Update - Short Term Update 04-02 (en),
The world economy recovers slowly after a net decline in 2001. Both ‘soft’ (e.g. confidence indicators) and ‘hard’ indicators (e.g. industrial production and world trade) reached a turning point by the end of last year. In a first wave, the magnitude of the upswing, mainly in the US, was a surprise. More recently, however, several confidence indicators started to decline again.
In this context, Belgian real GDP should grow by only 0.7 % in 2002, somewhat below last year’s figure of 1 %. Two consecutive years of weak economic growth should lead to a fall in domestic employment (-0.2 % in 2002), the first decline since 1994.
The global recovery scenario for 2003 remains in place, despite the current hitch in the international business climate. In Belgium, the cyclical recovery is already clearly visible in exports and most recent indicators are pointing to a positive reversal in private consumption in the course of this year. The consequences of last year’s downturn for investor confidence and employment however have not yet been overcome, but this should change as the correction of overinvestment seems to be gradually coming to an end and entrepreneurs should begin to increase their staff by the end of this year, reacting with a certain time lag to the recovery of economic activity. As a result, Belgian real GDP should grow by 2.6 % next year. The underlying scenario of a sustained recovery in the world economy during the coming quarters is however surrounded by a number of risks, as is reflected in the current volatility of stock markets.
Short Term Update - Short Term Update 03-02 (en),
During recent months it has become clear that the turning point in the business cycle has been passed both in the US and in the euro area. Attention has shifted since then to the question of how strong the recovery will be and what will be the forces driving it. A substantial improvement in the labour market situation is now the missing link to ensure a seamless transition from a more technical inventories-led upturn to a broader demand-led recovery and to avoid the risk of a double dip scenario, both in the US and in the euro area. As the labour market situation reacts to economic activity with a certain time lag, it is crucial that the business cycle upturn should remain sufficiently strong to persuade entrepreneurs to increase their staff.
According to the FPB’s leading indicator, the Belgian GDP cycle should only begin to climb in the second half of 2002. As a result, GDP should record an average annual increase this year which is almost identical to last year, i.e. 1.0%. Its composition and dynamics should, however, be quite different. The economic upturn should only have a positive impact on employment by the end of the year. The full positive impact of the economic recovery will become visible in 2003, with an expected GDP growth rate of 3.0%. In April 2002, national consumer price inflation fell below 2% (yoy) and it should stay below that level on average in 2002 and 2003.
Short Term Update - Short Term Update 02-02 (en),
After an exceptional year in 2000, world trade growth deteriorated sharply in 2001. The collapse of world trade can be explained by the synchronized slackening of the three main economic powers (United States, Japan, and the European Union). The attacks of 11 September and their economic and political impact have, of course, amplified the downturn. The end of destocking and the hesitant recovery, which, according to certain indicators, may be starting in the United States during the first semester of this year, should allow world trade to regain positive growth rates, although a stronger recovery should not be expected before the second half of 2002.
The Belgian economy was severely affected by the slowdown in world trade. On annual average, GDP should have grown by about 1.0% in 2001. In 2002 GDP should record an almost identical average annual increase, i.e. 0.9%. The composition and dynamics should, however, be quite different. After a first quarter marked by the impact of the bankruptcy of SABENA, real GDP should grow at positive qoq rates in a range between 0.5 and 1%. The economic upturn should only have a positive impact on employment by the end of the year. This year, consumer price inflation should fall below 2%. It seems that lower imported inflation is finally beginning to be passed on to the underlying inflation.
Our forecast is counting on a gradual recovery in world trade, which should regain its full dynamics by the end of the year. We assume that the positive impact on economic recovery will mainly be observed in 2003. A strong recovery earlier this year would of course have a positive impact on growth in Europe and in Belgium as long as it does not give rise to an increase in oil prices.
Short Term Update - Short Term Update 01-02 (en),
During the past one and a half years, the world economy has been hit by a series of shocks, notably the large rise in oil prices, the abrupt slowing of growth in the United States (initiated by the bursting of the speculative bubble in the ICT sector) and the events of 11 September. This resulted in a synchronised slowdown in the three major economic regions (the United States, Japan and the European Union) and a pronounced downturn in world trade.
It is obvious that Belgium, being a ‘small open economy’, cannot escape the prevailing slowdown in the world economy. The forecasts for all components of final demand have therefore been revised downwards for both 2001 and 2002 as compared to our July projections. Under these circumstances GDP would not exceed a growth rate of 1.1% this year and 1.3% in real terms next year. These average annual growth rates are based on slightly negative growth figures (quarter-on-quarter) during the second half of this year, while positive and steadily increasing quarterly growth rates should be recorded in 2002 due to a recovery in exports.
Domestic demand should increase by only 1.1% both this year and next, while average growth over the last five years has amounted to 2.5%. Exports should suffer from slackening world demand in 2001, consequently growing by only 0.8%. In 2002 exports should accelerate and reach an average annual growth of 2.8%, which is much slower than in the second half of the 1990s.
The uncertainties surrounding these forecasts in the present political and economic situation should not be underestimated. The scenario on which the present forecasts are based assumes that the loss of consumer and business confidence will be of short duration, implying that the US economy will recover quickly next year. The consequences of the terrorist attacks of 11 September and the military response to those attacks may, however, have a more prolonged impact on investors’ and consumers’ confidence. As a final remark, it has to be underlined that the economic forecasts published in this STU were finalised before Sabena was declared bankrupt.
Short Term Update - Short Term Update 04-01 (en),
After a period of rapid expansion during 1999 and the first half of 2000, a clear worldwide slowdown was recorded in the second half of 2000. Current forecasts are assuming that world trade will recover in the second half of 2001. In line with this international scenario (lower growth, higher inflation), economic growth in Belgium has been revised downwards to 2.4% (compared to 2.8% in the economic budget last February). GDP growth next year should reach 2.8%, driven by stronger growth in exports and domestic demand.
In addition to the impact of the recovery of international trade, activity in 2002 should be fuelled by various internal factors boosting private consumption, such as wage and employment increases, the indexation of wages and social benefits above consumer price growth and personal income tax reform.
Domestic employment should rise by around 40,000 persons in 2001 and 45,000 in 2002, leading to a new improvement in the employment rate. Nevertheless, the impact on unemployment will be smaller, given the forecast increase in the labour force.
Inflation should be significantly lower in 2002 than in 2001 (1.5% as against 2.4% for consumer prices), thanks to a small decrease in energy prices, the stabilization of the euro exchange rate and lower prices for food products. The impact on inflation of the conversion of prices into euro is uncertain and any changes, should mainly be seen in 2001.
Short Term Update - Short Term Update 03-01 (en),
Belgian GDP growth is expected to decelerate from 3.9% in 2000 to 2.8% this year and to be less export-led than last year. Even when taking into account a recovery in world trade during the last few months of 2001, growth in Belgian exports should ease back significantly on average this year, due to the deceleration in world economic growth and the appreciation of the euro. Domestic demand should, however, remain robust in 2001 (2.5%). Private consumption growth (2.5%) should almost equal the average for the last three years, while business investment should do even better. Employment growth should remain strong this year (1.1%), although lower than the exceptional figure seen last year (1.8%). The decrease in inflation seems to be slower than was expected earlier. The general government financing capacity should move from 0% in 2000 to 0.7% of GDP in 2001.
The medium-term outlook for Belgium is pointing towards a GDP growth rate of 2.7% during the period from 2002 to 2006.This favourable development can be largely accounted for by domestic demand. The role of exports should be more limited. Private consumption should be more dynamic during the period covered by the forecast than it was during the 1996-2000 period thanks to a favourable development in households’ disposable income (stimulated in particular by an important fiscal reform). Gross fixed capital formation should also increase rapidly, reflecting the increase in business investment. Export growth, on the other hand, should not exceed 5.9% on average: the loss in export market share should be confirmed and the contribution to GDP growth from net exports is expected to decline.
The inflation rate should be kept below 2% in the medium term. Wage increases compatible with productivity gains, cuts in social security contributions and the extension of production capacity are the main domestic factors behind this more moderate inflation.
Annual employment growth should be around 1% between 2002 and 2006, but a large proportion of this expansion should be absorbed by an increase in the labour force. The unemployment rate in the broad sense (including long-term older unemployed) should decline more modestly (from 12.9% of the labour force in 2000 to 11.3% in 2006) than the official unemployment rate (from 10% to 7.5%).
Assuming an unchanged policy, but taking into account the measures decided upon recently, the financing capacity of the public administrations should improve up to the equivalent of 1.3% of GDP in 2006. Given the ambitious budgetary targets of Belgium’s stability program for 2001-2005, this means that the remaining budgetary margins should be, at most, very limited.
Short Term Update - Short Term Update 02-01 (en),
Belgian exports will be hit this year by the deceleration in world economic growth, which was already reflected by the net slowdown in world import demand at the end of last year. Even when taking into account the expected recovery in world trade from the second half of 2001 onwards, growth in Belgian export markets should significantly ease back. Moreover, the appreciation of the euro will reduce the price competitiveness of Belgian exports and would lead to loss of market share. As a result, the positive contribution towards real economic growth from external trade will decline.
Nevertheless, domestic demand should remain robust in 2001. Business investment should benefit from a rise in firms’ profitability due to the gain from the terms of trade (because of lower oil prices and the appreciation of the BEF). Private consumption will be sustained by substantial growth in household’s real disposable income as the expected deceleration in inflation will allow to regain part of the loss of purchasing power in 2000. Furthermore, households’ disposable income will also be supported by some personal tax cuts. Although the deterioration in the business cycle will lower the pace of employment growth, the higher labour-intensiveness, that has been observed during the last three years, will still give rise to a favorable employment outcome.
All in all, Belgian GDP is expected to decelerate from 3.9% in 2000 to 2.8% this year and to be less export-led than last year.
Taking into account the 2001 Budget and the macro-economic outlook presented above, and including the expected revenues from the UMTS licences (0.2% of GDP), the general government budget balance is expected to move from equilibrium in 2000 to a small surplus in 2001 (about 0.7% of GDP).
Short Term Update - Short Term Update 01-01 (en),
Real GDP growth is expected to be 3.8% this year - the highest growth rate since 1988 - and 3.2% next year. Exports and private consumption were very buoyant during the first half of 2000. However, both the private consumption cycle and the export cycle should have peaked by the middle of 2000 and should gradually move down towards their trend path in the second half of the current year. This should lead to a slowdown in GDP growth during the second half of 2000, although it will remain robust, at rates of about 3% yoy.
The overall economic environment should remain favourable next year. The growth of external demand should largely exceed the average seen during the last decade, despite a moderate slowdown in our main export markets. Belgian exporters should, as in 2000 and contrary to what has generally been observed in the last two decades, lose almost no market share, reflecting improved competitiveness due to the depreciation of the euro and subdued domestic costs. The 2001 Budget contains some personal tax cuts and supplementary social benefits which should support households’ disposable income, while the loss of purchasing power due to rising energy prices is not expected to be repeated. Households’ disposable income should also benefit from substantial growth in employment. The rise in employment seen since 1995 should indeed continue during the forecast period. This is supported by sustained growth in economic activity and government measures aimed at promoting employment. The expected increase in the participation rate should sustain the labour supply and help to limit pressures in the labour market.
The combined effect of persistently high oil prices and a weak euro resulted in an upward revision of inflation prospects for this and next year, which is now expected to be 2.5% in 2000 and 1.9% in 2001. It appears that import price increases have at last begun to be passed on to domestic consumer prices. It should be noted, however, that these “second round” effects are not, so far, spreading to wages.
Taking into account the 2001 Budget and the macro-economic outlook presented above, and disregarding the one-off revenues from the auctioning of UMTS licenses, the general government budget balance is expected to move from broad equilibrium in 2000 to a small surplus in 2001.
The underlying risks to our macro-economic forecasts are mainly linked to the international financial conditions that will prevail in the year 2001. Additionally, wage increases in Belgium exceeding wage developments in its main trading partners could harm Belgium’s competitive position.
Short Term Update - Short Term Update 04-00 (en),
The Belgian economy has entered a period of strong cyclical growth since activity accelerated strongly in the second half of last year. Benefiting from an important positive carry-over effect, the increase in GDP should be 3.8% this year. Next year economic growth should be 3.1%.
Despite two consecutive years of strong growth, pressure on the goods and labour market should remain limited. The sustained growth in business investment and a rise in the labour supply could raise potential growth in Belgium. In the special topic of this issue, it is shown that this increase in the labour supply should result from higher participation rates.
Moreover, the acceleration in the general consumer price index seen in recent months and the rise in our inflation forecast for the year 2000 are only marginally influenced by domestic cost components in general, and by wage costs in particular, but can principally be explained by the increase in import prices, especially oil prices, whose effect was strengthened by the fall in the effective euro exchange rate.
As in 2000, economic growth in 2001 will be broadly based. It will be stimulated by a positive contribution from foreign trade and a still vigorous domestic demand, despite a slowdown following the very dynamic expansion of domestic demand this year. Growth of private employment will hardly weaken in 2001. The improvement in employment during the 2000-2001 period will lead to a further increase in the employment rate. From 1995 to 2001, the employment rate should gain 3.4 percentage points in all.
Short Term Update - Short Term Update 03-00 (en),
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.
Short Term Update - Short Term Update 02-00 (en),
The recovery in world economic growth in 1999 led to a strong acceleration in economic growth in Belgium during the second half of 1999. Faced with improved prospects, the manufacturing sector is expected to build up stocks again from the fourth quarter of 1999 onwards, after having strongly reduced their stocks during the recent economic slowdown (mid-1998 to mid-1999).
Fixed capital formation in non-industrial sectors increased strongly in 1999, private consumption grew at a relatively sustained pace, and the contribution from external trade was positive. For 1999 as a whole, economic growth in Belgium reached 2.3%. The upward trend of all demand components in the course of 1999, if confirmed, will lead to a positive carry-over effect for the year 2000.
Economic activity in Europe should accelerate in 2000, US economic growth should be sustained and the emerging economies should continue their recovery. Belgian export markets should then grow faster in 2000 than in 1999. Moreover, the depreciation of the euro during the 1999-2000 period and the new cuts in non-wage costs should boost the price competitiveness of the Belgian economy. For the first time for more than 10 years, Belgium should even slightly increase its market shares.
The contribution of stockbuilding towards economic growth should be largely positive, the rate of investment by companies should rise again and household investment should recover. The growth in household disposable income should reach 2.3% in real terms in 2000 (1.4% in 1999), thanks to a new strong creation in employment, a slightly higher growth in real wages and an increase in capital income. Private consumption should rise by 2.1% leaving the savings rate quasi unchanged.
All in all, Belgian GDP growth should reach 3.2% in 2000, thanks to dynamic domestic demand (2.9%) and a net contribution from exports (0.4%).
Oil prices more than doubled between December 1998 and December 1999. Energy prices are not, however, expected to continue rising in 2000, while underlying inflation should accelerate somewhat in the course of the year. The consumption price index should increase by 1.5% in 2000 (compared with 1.1% in 1999) and the health index by 1.3%.
Growth prospects for 2000 should allow a further reduction of the public deficit.
Short Term Update - Short Term Update 01-00 (en),
Since our July forecasts, a number of new developments inside and outside Belgium have occurred. Taking those elements into account, a rapid and tentative updating of our forecasts for 1999-2000 has been made.
The first element concerns the good news stemming from the quarterly national accounts of a higher than expected GDP growth in the second quarter of 1999. As a result, over the first half of 1999, Belgian GDP growth reached 1.7% (yoy). The FPB GDP-leading indicator points to a further cyclical upturn in the second half of the year. It is also worth stressing that according to the information available today (in terms of value added, trade and unemployment), the impact of the dioxin crisis is still in line with the assumptions made in our July forecasts.
All in all, GDP growth in 1999 has been revised upward from 1.7% to 1.9%.
As prospects for the world economy are looking brighter now than four months ago and the 2000 Federal Budget is on an expansionary track, GDP growth in 2000 has been revised upward from 2.5% to 3.0%. Both developments are complementary - in the sense that the former primarily triggers exports, whereas the latter in the short-term mainly boosts private consumption- although the impact of the more favourable international environment on GDP growth is more important than the revision coming from the Budget 2000.
The acceleration of Belgian export markets in 2000 should indeed be stronger than previously expected due to higher import growth experienced by our European trading partners as well as in the rest of the world, resulting in stronger export growth than estimated earlier.
Compared to our July forecasts, the budgetary impulse for 2000 taken into account in these new forecasts is more than BEF 30 billion. At this stage, the simulation results in this field must be interpreted with caution. The most important effect of the measures should be seen in the area of private consumption, resulting from an increase in employment (reductions in social contributions) and accordingly in households’ real disposable income (reinforced by tax cuts and higher pensions).
Short Term Update - Short Term Update 04-99 (en),
In contrast with strong global economic growth in 1998, Belgian exports declined substantially during the third and fourth quarter, as the crisis in South-East Asia and in some other emerging economies progressively affected intra-European trade. Even given a scenario of fairly strong Belgian export recovery during the second half of the current year, the low level reached in the first quarter of 1999 implies a low annual growth rate for exports in 1999.
Employment creation should remain significant in 1999 (about 1.1%); domestic demand (2.1%) should keep driving economic growth, although at a much slower pace than in 1998. The implications of the dioxin crisis remain largely uncertain. Assuming that most detrimental effects would progressively disappear after three months, it should reduce exports in 1999 by 0.3% and GDP by 0.2%. In this scenario, GDP growth in 1999 should be 1.7%; net exports contribution to GDP growth would be negative by 0.2%.
Economic growth in 2000 should attain 2.5% and be supported by better export performance (5.1%): the depreciation of the Euro in 1999 should increase the competitiveness of the Euro-zone, boosting our main export markets. Belgian exports should also take advantage from the decrease in employer's contributions to social security, and from a moderate recovery in our agricultural and agro-industrial exports.
Private consumption growth (1.8%) should remain moderate as no further impulse is expected from households' savings. Business gross capital formation should remain weak. Profits and related revenues should suffer from, among others, the deterioration in the terms of trade due to higher energy prices and the depreciation in the BEF effective exchange rate during the first half of 1999, as well as from the financial consequences of the dioxin crisis.
The pace of economic growth, the different measures limiting wage increases, and the active labour market policy measures should allow employment to keep growing in 2000 (1.0%). Inflation should remain subdued at 1.3%.
Short Term Update - Short Term Update 03-99 (en),
Sustained economic growth in Belgium in 1998 was supported by rapidly growing private consumption and investment. In contrast, the contribution of trade to real economic growth was negative in 1998. Nevertheless, a strong increase in terms of trade, due to the low prices of raw materials, allowed trade still to make a positive contribution towards growth in nominal terms.
Export performance remains the key question for 1999: the deterioration of our export markets led to negative growth in Belgian exports in 1998Q4 (t/t-4) and the timing and strength of a recovery remain uncertain. International organisations are forecasting a clear upturn in world trade in mid-1999. On the basis of this scenario, the FPB is forecasting economic growth in Belgium of 2% in 1999.
So far, however, leading indicators suggest that the upturn in exports in 1999 could be weaker than expected. The Balkan crisis is also having a negative impact on growth prospects. On the other hand, the recent fall in interest and exchange rates in the euro area does improve prospects for 1999.
Domestic demand is not expected to be as buoyant as in 1998, and it should continue to drive growth in 1999. With a 1% increase in employment, consumer confidence will remain high: private consumption growth should be around 2%. Inflation remains at around 1%. The general government borrowing requirement should be less than 1% of GDP, due to the low level of interest rates.
The medium-term outlook for Belgium points to an average growth rate of GDP of 2.5% per year during the 2000-2004 period in an “unchanged policy” scenario. Gross nominal wages are expected to be broadly in line with nominal labour costs in the neighbouring countries. Planned cuts in non-wage costs should therefore lead to enhanced competitiveness. Nonetheless, the slightly accelerated pace of inflation in Europe should cause domestic inflation to rise to 1.6%. The average rate of growth of employment, strongly supported by active labour market policy measures, is estimated at around 0.9% per year in average, leading to a drop in unemployment.
Based on this scenario, the general government financing capacity should become positive from 2001 onward. The “budgetary margins”, which will cumulatively reach 1.7% of GDP in 2004, will probably be used to decrease the tax burden or/and increase expenditure: this “changed policy” scenario implies stronger macroeconomic performance than the “unchanged policy” scenario.
Short Term Update - Short Term Update 02-99 (en),
During the past few months, the signals concerning the development of the economy have been mixed. There are three indicators worth mentioning on the negative side. Growth in world trade, and in particular intra-European trade, has slowed. Partly in connection with this, it is estimated that Belgian exports have actually fallen in the second half of 1998, compared to the first half of the year. Thirdly, industrial confidence has continued to decline.
On the positive side there are four factors worth noting. Unemployment has continued to decline for the sixth consecutive quarter. Consumer confidence remains high and has even improved during the last few months. Thirdly, real interest rates have continued to fall and finally the government deficit fell sharply in 1998.
There are some fragile indications that the slowdown in the economy will only be temporary and that activity may soon resume its upward trend. Nevertheless, in terms of annual averages, 1999 should show a weakening in GDP growth, which is estimated to be 2%.
The upturn should be most visible in exports. Year-on-year growth rates for exports and private consumption should be relatively low at the beginning of the year and gradually improve thereafter.
Inflationary pressures should be absent. Underlying inflation will continue to hover around 1.4%, while oil prices should, on average, be lower than in 1998, leading to consumer price inflation of 1%, which is the same growth rate as in 1998. The health index should rise by 1.2%.
The labour market was particularly vigorous in 1998, with 54,000 more people in work (from June to June). In the second half of 1998 and into 1999, job creation is expected to be less dynamic. The June-to- June change for 1999 should be 33,000. The standardized unemployment rate should continue to fall, from 8.6% in 1998 to 8.2% this year.
In the area of public finances, the net borrowing requirement should be around 1.3% of GDP in 1998 and decline further in 1999. The primary surplus is expected to be above 6% in 1998 and 1999.
Short Term Update - Short Term Update 01-99 (en),
The FPB is reassessing the state of the economy in 1998 and its possible evolution for 1999.
In 1998 the Belgian economy has continued to grow strongly and has moved into a “mature” phase of recovery with exports and investment no longer providing the engine for growth. Private consumption, fed mainly by employment growth, moderate real wage increases and high consumer confidence, took over their role. Employment growth remains impressive.
The outlook for the world economy for 1999 has deteriorated: the Asian crisis has widened and deepened and contagion effects have started to affect also Russia, Latin American countries and, to a lesser extent, Eastern Europe. World financial markets have shown extreme volatility. Continental European countries will be affected by the deterioration of the global economic performance and the weakening of the USD, but should nevertheless become the fastest growing area in the world.
Any forecast concerning Belgium is fragile in this context but it seems likely that the GDP-growth forecast for 1999 given in July (2.6%) is too optimistic. The Belgian economy might not be growing faster than 2.2% with significant downward risks on the domestic and international side.
Many uncertainties and downward risks regarding the international environment are linked, and, given the interdependencies in the global economy could trigger all the others and lead to a sharp deterioration in the overall economic situation.
Export growth should be significantly lower than in 1998 while private consumption should be less affected. Employment should still increase by 0.8% and the unemployment rate should further fall from 8.6% to 8.3% (Eurostat standardised definition).
In any case, consumption price inflation remains subdued at about 0.9% (1% for the “health” index). Wage increases will remain moderate, under the influence of the “wage norm”. Interest rates in Belgium drop in line with international rates. This should be a positive factor for domestic demand.
Short Term Update - Short Term Update 04-98 (en),
Belgian GDP grew by 2.9% in 1997. GDP growth should hardly be reduced this and next year: the FPB expects a growth rate of 2.8% in 1998 and 2.6% in 1999.
So far, the FPB expected the negative impact of the Asian crisis to be neutralised by a more dynamic domestic demand. While exports do actually slow down, it seems that domestic demand more than compensates for this.
The good figures for domestic demand in 1998 concern mainly private consumption. They are influenced by the concentrated purchases of cars after the biannual Motor Show but also by a number of other special factors positively affecting household disposable income. These will not be present in 1999 so that smaller growth rates for real disposable income as well as private consumption are expected.
Employment creation should contribute substantially to the income growth of households during 1998 and 1999. For both years, employment should increase by about 45,000 people (or about 1.2%), which is considerable compared to the past seven years.
About a quarter of the job creation can be attributed to special programmes, which are mainly taking place in enterprises. Moreover, wage moderation, as well as further cuts in employers’ contributions to social security contribute to a more labour-intensive growth and an improvement of competitiveness.
The business investment rate should continue to climb, but remains relatively low compared to the end of the 80's.
The wage evolution in 1999 remains dependent on the “Wage norm”. Wage moderation in the neighbouring countries constraints the wage evolution in Belgium. Gross hourly wages in the private sector are expected to increase by 1.2% in real terms in 1999. The risk of wage inflation is therefore limited, even though labour market shortages could emerge.
Somewhat stronger import price increases and a slightly positive output gap lead to a small rise in the inflation rates in 1999 (1.3%, compared to 1.1% in 1998). Interest rates should also slightly increase in the Euro zone as well as in Belgium.
Short Term Update - Short Term Update 03-98 (en),
Growth in Belgium in 1997 turned out significantly better than expected, but some weakening has occurred during the last quarter. The underlying trend in GDP growth should, however, confirm the 2.5% growth forecast for 1998.
The weakening in growth activity at the end of last year is to a large extent due to a significantly lower rate of growth for exports. As has been mentioned in other FPB-publications, the Asia crisis is having a dampening effect on the world and also the Belgian economy. The impact of the Asia crisis will mainly be felt in trade. Export growth will, therefore, continue to be negatively affected by slower growth in world trade. Price competitiveness has, on the other hand, improved considerably during the last two years. All in all, net exports should continue to make a positive contribution to GDP growth, but this contribution will be smaller than in 1997. As the effect of the Asia crisis is expected to be limited to 1998, some increase in growth is again expected in 1999 with GDP growth of 2.8%.
Domestic demand and particularly private consumption have continued to show a marked improvement. The consumer confidence index, strengthened by the creation of considerable employment opportunities, somewhat higher wage increases and good news concerning public finance, points to sustained consumer growth during the first quarters of 1998.
The medium-term outlook for Belgium points to an average growth rate of 2.6% over the next five years. But even with this rate of growth and moderate wage increases in accordance with the 1996 Framework Law, unemployment is likely to remain above the 1990 level. The growth in employment is estimated at around 0.75% per year and the supply of labour would increase by 0.2% per year.
The general government borrowing requirement should continue to show a gradual decrease and become a surplus from 2002 onwards in an “unchanged policy” scenario. The primary surplus should remain close to 6% from 1997 to 2000 and should increase again from then on. The debt ratio and interest burden are clearly decreasing.
Consumer price inflation should remain at 1.1% this year and show only a slight increase next year. If there are no external shocks and if wages continue to be constrained by the Competitiveness Law, there are few reasons why price stability should be threatened in future. Nominal interest rates should remain low.
Short Term Update - Short Term Update 02-98 (en),
As compared with the November forecast, the FPB now expects GDP to grow by 2.7% in 1997 (instead of 2.4%) and by 2.5% in 1998 (instead of 2.7%).
The Belgian economic situation has been affected by the world economy in two entirely different ways. On the one hand the Asia crisis has had a dampening effect on exports and on the outlook for business profitability. It is estimated that its impact will be 0.4% of GDP in 1998. On the other hand, the European economy in general, and the Belgian economy in particular, has recently shown signs of an upturn in domestic demand.
Activity growth turned out better than expected in 1997. The appreciation of the US dollar and UK pound meant that foreign trade contributed strongly to economic growth. Private consumption was higher than forecast. The NBB survey indicators for foreign order books would seem to show that exports may experience a lower rate of growth in the quarters to come, partly because of declining growth in world trade as a result of the Asian crisis.
It is increasingly likely that the growth in GDP for 1998 will be more balanced. The contribution of exports should diminish while domestic demand should gain in strength. This trend was already apparent in the second half of last year.
Consumer price inflation was 1.6% in 1997. This year, even a lower inflation rate seems likely. The underlying inflation rate has hovered around 1.25% in 1997, although import price inflation was about 4.5%. For 1998 CPI inflation is estimated at 1.2%, and the “health-index” should increase by 1.3%.
The impact of activity on employment in 1997 is still difficult to assess. The FPB estimates the increase in domestic employment at 0.6%. The impact on unemployment figures has been slight, due to higher participation rates. Employment should rise in 1998 by some 33,000 (or 0.9%), leading to a small fall in the unemployment rate. A proportion of the growth in employment can be attributed to specific employment programmes.
The better than expected economic performance should result in a lower general government deficit of around 2% of GDP in 1997. Due to lower interest rates and a declining debt ratio, there should be a further reduction in interest payments in 1998.
Short Term Update - Short Term Update 01-98 (en),
An improvement in the most recent economic indicators and a better outlook for the European economy have prompted the FPB to revise its growth forecasts. GDP is now expected to grow by 2.4% in 1997 and 2.7% in 1998, compared to the previous forecasts of 2.1% and 2.5% respectively.
Higher growth rates are forecast for domestic as well as external demand. The revision, however, is mainly based on external factors. Exporters are benefiting with a certain time lag from a stronger USD and UKP. The combined expected depreciation of the BEF over 1997-98 is now 4.5%. As it concerns essentially a depreciation of the currencies of the whole DEM-zone, not only Belgian exporters benefit from this, but the impact on the economies of the other continental European countries is also positive. This, in turn, improves market opportunities for Belgian exporters.
The recent import price increases are linked to the exchange rate evolution. Consumer price inflation, however, remains subdued and is expected to amount to 1.65% in 1997 and 1.7% in 1998. The recent and expected rises in short term interest rates on the European continent should not have a significant effect on economic activity.
There are a few small signs of an improving labour market. In 1998, employment should increase by 44,000, taking into account specific programmes targeting unemployed people. This should therefore lead to increased private consumption and higher tax receipts.
The macroeconomic impact of the 1998-Budget is small. The government deficit should be well below 3% of GDP in 1997 and 1998. The deficit figures of 2.5% and 2.3% for 1997 and 1998 respectively, announced by the FPB in April, should be achieved without difficulty. The expected economic growth and the measures set out in the 1998-Budget should even enable the deficit to be reduced further.
Short Term Update - Short Term Update 02-97 (en),
Short Term Update - Short Term Update 01-97 (en),