Economic projections for Belgium – Spring 2014

The article presents the Bank’s new macroeconomic projections. For the first time, and in accordance with the change in the publication of the euro area projections by the ECB, the projection period includes the year t+2, in this case 2016. It should be stressed that the uncertainty around the central projection increases substantially for later years, inter alia because it is an unchanged policy scenario. These Spring 2014 projections were produced in a context of a further recovery in the global economy and in the euro area, notwithstanding the remaining short-term volatility. The Eurosystem projections for the euro area point to activity growth firming and inflation picking up slowly over the 2014-2016 period. As to Belgium, the Autumn 2013 projections are by and large confirmed with only a minor upward revision to 1.3 % for annual activity growth in 2014. Growth is projected to strengthen further to about 1.6 %-1.7 % in the two following years, and domestic demand should become the driving factor with the positive contribution from net exports disappearing as of 2015. Very moderate wage cost growth, a strong euro and declining energy prices are curbing inflation despite a recovery in profit margins. Headline inflation is projected to reach an exceptionally low level in 2014, partly as a result of an indirect tax cut, but is set to rise gradually over the projection horizon, reaching 1.6 % in 2016 (with core inflation rising to 1.8 % in 2016). While net job losses still amounted to some 10,000 in 2013, the labour market has picked up a bit earlier than envisaged in the Autumn 2013 projections. It is projected to strengthen further over the projection horizon although, taking into account the expected growth in the labour force, job creation will only be sufficient to reduce the unemployment rate from 2015 onwards. By unchanged policy, the government deficit is projected to remain at 2.6 % of GDP this year as in 2013 and drift upwards in the 2015-2016 period, while staying marginally below the 3 % of GDP threshold. Government debt would remain larger than GDP throughout the projection period.