Belgium

1. BELGIUM
Headwinds to recovery
Both the performance and the outlook of the Belgian economy have deteriorated in recent months. GDP
growth is now forecast to remain below 1% in 2014 and 2015, with slightly higher growth in 2016. The
main constraints to the outlook relate to domestic demand, in particular private and public
consumption. Belgium’s fiscal deficit is forecast at around 2.8% of GDP in both 2015 and 2016.
The pick-up in economic activity that started in the
second half of last year, has stalled since spring.
The weak growth seen in Q2-2014 is projected to
have continued, with leading indicators such as
industrial production providing scant evidence of
more dynamic performance in the short-term.
Annual growth is expected to arrive at 0.9% in
both 2014 and 2015. At 1.1%, economic growth
would be faintly higher in 2016.
Household consumption to lose ground given
modest income growth
Spending by Belgian households is set to grow by
1.2% in 2014. However, consumer spending is not
expected to maintain this growth pace in coming
years. The tightening of the fiscal stance entails a
series of small measures that dampen the outlook
for consumer spending in 2015. Income growth of
around 1% in 2014-16 reflects, on the one hand,
low inflation and, on the other hand, government
measures to restrain nominal wage growth in order
to regain cost competitiveness. Labour market
dynamics are expected to improve only slowly
over the forecast horizon amid subdued economic
activity. The unemployment rate is projected to fall
from a ten-year peak of 8.5% in 2014 to 8.2% in
2016 as job creation in the private sector is largely
absorbed by substantial reductions in public
employment and the increase in the labour force.
Investment held back by
external demand pressures
domestic
and
The robust projection for investment growth in
2014 (+3.6%) is greatly influenced by large oneoff purchases. While capacity utilisation has been
approaching its historic average and financing
conditions are favourable, the softening of domestic demand and the deteriorated export outlook are
set to hold back new equipment investment in the
near term. As a consequence, 2015 should see
more modest growth, also because the improvement in construction activity is slow-moving.
In the second half of this year, the economic
slowdown in the euro area and in particular among
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major trading partners is anticipated to dampen
external demand, while hesitant domestic activity
restrains import growth. Exports, however, should
accelerate as foreign demand strengthens over the
forecast horizon. All in all, the contribution to
overall activity from net trade is forecast to remain
positive in 2014-15 and turn neutral in 2016.
Weak inflation reflects low import prices and
transitory tax effects
Headline inflation has been on a downward
trajectory, falling back to 0.4% in Q3-2014.
Negative price developments for energy and, more
recently, unprocessed food items, are the fundamental drivers of this trend. As such, low inflation
is mostly imported and core inflation remains well
above 1%. The recent reduction of VAT on
household electricity bills, adds to downward price
dynamics for energy carriers, though this effect
will fade over the course of 2015. At 0.9% in 2015
and 1.3% in 2016, inflation is projected to remain
moderate, in line with passive economic activity
and stagnant wage growth.
Graph II.1.1: Belgium - Real GDP growth and contributions
4
pps.
forecast
3
2
1
0
-1
-2
-3
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Inventories
Net exports
Dom. demand, excl. invent.
Real GDP (y-o-y%)
Flat outlook for government balance
The outlook for the 2014 general government
deficit worsened substantially since the spring
forecast, from 2.6% of GDP to 3.0%. Statistical
reclassifications have had a negative impact of
around 0.3 pp., while tax revenues have suffered
from the economic slowdown. On the other hand,
Member States, Belgium
one-off measures, such as a tax amnesty, had a
positive impact of 0.4 pp. As a result, the structural
balance is projected to be broadly stable in 2014.
dividend income and financial sector guarantee
fees (-0.1 pp. of GDP), and dynamic upward trends
in social spending (+0.3 pp. of GDP), in particular
pension expenditure. The cyclical impact on the
deficit remains broadly unchanged between 2014
and 2015, while the structural balance improves by
almost ½% of GDP.
In 2015, the headline deficit is expected to
improve by 0.2 pp. of GDP. This projection
includes almost 1% of GDP of new measures
announced
by
the
federal
and
the
regional/community governments, mostly of a
structural nature. Main measures include cuts in
the wage bill and administrative expenditure of the
federal and sub-federal governments, a lower
growth norm for health care expenditure, tighter
criteria for social benefits and a postponement of
the previously announced reduction in social
security contributions, which is offset by an
increase in income tax deductions for workers.
Lastly, the temporary suspension of wage
indexation, both in the public as well as the private
sector, has a slightly positive budgetary impact,
with savings on the wage bill and social benefits
more than offsetting the impact on tax revenues.
Furthermore, the decline in interest rates
contributes to the improvement by around 0.2 pp.
of GDP. On the other hand, the government
balance is negatively impacted by the evolution of
one-off revenues (-0.2 pp. of GDP), a decline in
In 2016, under the usual no-policy-change
assumption, the headline deficit remains stable at
2.8% of GDP. The structural balance is not
projected to improve further, despite the additional
positive impact of sufficiently specified new
measures of around 0.2% of GDP.
General government debt has been substantially
revised upwards since the spring 2014 forecast,
mainly due to the reclassification of a number of
corporations into the government sector.
Furthermore, the debt ratio is forecast to rise from
104.5% of GDP at the end of 2013 to almost 106%
of GDP at the end of this year. Over the forecast
horizon, the projected low nominal GDP growth is
insufficient to offset the impact of further deficit
accumulation and stock-flow adjustments on the
debt ratio. As a consequence, it is expected to rise
further to over 107% of GDP.
Table II.1.1:
Main features of country forecast - BELGIUM
2013
GDP
Private Consumption
Public Consumption
Gross fixed capital formation
of which: equipment
Exports (goods and services)
Imports (goods and services)
GNI (GDP deflator)
Contribution to GDP growth:
Annual percentage change
bn EUR Curr. prices
% GDP
95-10
2011
2012
2013
2014
2015
2016
395.3
100.0
2.0
1.6
0.1
0.3
0.9
0.9
1.1
204.0
51.6
1.6
0.6
0.8
0.3
1.2
1.0
0.8
96.5
24.4
1.7
0.8
1.4
1.1
0.9
-0.3
0.7
88.0
22.3
2.5
4.0
0.0
-2.2
3.6
0.9
2.3
27.4
6.9
2.7
2.6
-3.0
-5.8
9.2
0.5
3.3
327.1
82.8
4.3
6.6
1.9
2.9
3.0
2.9
4.2
321.8
81.4
4.2
7.2
1.9
1.8
2.9
2.8
4.2
391.3
99.0
2.0
0.9
0.8
-2.5
1.8
0.9
1.2
1.8
1.4
0.8
-0.1
1.7
0.7
1.1
0.0
0.6
-0.7
-0.5
-0.8
0.0
0.0
0.2
-0.3
0.1
0.8
0.1
0.2
0.0
Domestic demand
Inventories
Net exports
Employment
Unemployment rate (a)
Compensation of employees / head
Unit labour costs whole economy
Real unit labour cost
Saving rate of households (b)
GDP deflator
Harmonised index of consumer prices
Terms of trade goods
Trade balance (goods) (c)
Current-account balance (c)
Net lending (+) or borrowing (-) vis-a-vis ROW (c)
General government balance (c)
Cyclically-adjusted budget balance (c)
Structural budget balance (c)
General government gross debt (c)
1.0
1.4
0.3
-0.3
0.2
0.4
0.6
8.2
7.2
7.6
8.4
8.5
8.4
8.2
2.4
3.0
3.4
2.6
0.6
0.5
0.3
1.5
2.8
3.6
2.0
-0.1
0.0
-0.2
-0.2
0.6
1.5
0.5
-0.8
-0.6
-1.3
17.0
14.7
13.9
13.5
13.4
13.3
13.3
1.7
2.2
2.1
1.5
0.8
0.6
1.1
1.9
3.4
2.6
1.2
0.6
0.9
1.3
-0.6
-1.8
0.2
0.4
0.4
-0.1
-0.1
2.2
-1.5
-1.5
-0.7
-0.5
-0.5
-0.6
3.7
0.3
0.6
-1.5
-0.3
-0.5
-0.7
3.6
0.2
1.3
-1.5
-0.1
-0.5
-0.7
-1.7
-3.9
-4.1
-2.9
-3.0
-2.8
-2.8
-1.9
-3.8
-3.6
-2.1 -
-2.3
-2.1
-2.3
-
-3.6
-3.1
106.2
102.1
104.0
-2.7 104.5
-2.6
-2.2
-2.3
105.8
107.3
107.8
(a) Eurostat definition. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
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