Economic projections for Belgium – Autumn 2010

The global economic recovery which had begun in mid 2009 has continued, though its strength has varied from one region to another. The emerging economies have been the driving force, propelling the revival of international trade. The upturn is more gradual in the advanced economies, as is generally the case after an economic recession accompanied by a financial crisis. Moreover, there has been some loss of momentum in the past few months owing to the difficult transition to a self-sustaining recovery, as the fiscal stimuli initially introduced in the midst of the crisis are giving way to a general move towards the consolidation of public finances. In the euro area, significant divergences have become apparent between the performance of the economies which have been able to take advantage of the strengthening foreign demand and that of countries facing major structural adjustments. In that context, the projections indicate that the recovery will be maintained, but will be weaker for a time than at the beginning of 2010. In Belgium, too, the hesitant revival in activity which had begun in the second half of 2009 was consolidated and has since been maintained. So far it has been slightly stronger than previously expected. Overall, following a contraction of 2.7 p.c. in 2009, growth is forecast at 2.1 p.c. in 2010 and 1.8 p.c. in 2011, slightly outpacing growth in the euro area. In view of the slump in GDP during the recession, the resilience of the labour market was a welcome surprise. The decline in employment was both limited and short-lived: altogether, job losses totalled 38,400 units between the end of 2008 and the end of 2009. These losses were already more or less offset by jobs created during the first two quarters of 2010. According to the projections, job creations are likely to exceed 56,000 units during 2010, with a further 15,000 units in 2011. The resilience of employment is due to the use of flexible arrangements during the period of the economic slowdown and to a decline in the hourly productivity. In that context, the unemployment rate increased from 7 p.c. in 2008 to 7.9 p.c. in 2009 and 8.5 p.c. in 2010. It is projected at 8.6 p.c. in 2011. The recovery was initiated in 2009 by the end of the movement towards stock reduction and by the export revival triggered by the marked strengthening of international trade. Domestic demand excluding the change in stocks is also likely to gain momentum, boosted initially by private consumption. Households are in fact expected to reduce their savings ratio to its pre-crisis level, as uncertainties regarding the labour market prospects and the value of financial assets have receded. In 2011, housing and business investments will also start contributing to the growth of domestic demand. Inflation measured by the HICP is forecast to dip slightly during the coming year, so that – as an annual average – it will increase from the rate of 0 p.c. recorded in 2009 to 2.3 p.c. this year before subsiding to 2.1 p.c. in 2011. According to the latest data, Belgium’s public finances will end the year 2010 with a deficit of 4.8 p.c. of GDP, which is a 1.2 percentage point improvement on 2009. In the absence of a budget for the federal government and social security for 2011, assuming no policy change, and given the continuing consolidation of economic conditions, the deficit is forecast at 4.7 p.c. The government debt ratio is projected to continue rising in 2010 and 2011, but at a much more modest pace than in the two previous years. In 2010, the debt ratio is estimated at 97.6 p.c. of GDP. In 2011 it will rise further, to 99.8 p.c. of GDP.