Economic projections for Belgium – Spring 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, while the upturn is likely to be more gradual in the advanced economies, as is generally the case after economic recessions accompanied by a financial crisis. The euro area has also returned to positive growth since mid 2009, but this growth has been far less dynamic than in the rest of the world. Moreover, the increase in budget deficits and public debt has given rise to fears over the sustainability of public finances in some countries, causing renewed tensions on the financial markets. In Belgium, activity also started to pick up from the third quarter of 2009, although the pace remained moderate. Altogether, however, the decline in GDP of 3 p.c. in 2009 was slightly smaller than in the euro area as a whole, and growth is estimated to be a little more sustained this year and next. According to the projections, it will reach 1.3 p.c. in 2010 and 1.7 p.c. in 2011. At first, it is likely to be underpinned by foreign demand, while consumption and, later, investment should gradually gather momentum. The labour market has displayed some resilience, considering the seriousness of the economic recession. Job losses and the rise in unemployment were limited by large-scale use of temporary layoffs and by a sharp fall in corporate productivity. However, since these factors are likely to return to normal, the reduction in employment is projected to continue in 2010. Net job losses are estimated at 12,900 persons in the course of the year, following a decline of 38,500 units during 2009. Employment should resume growth during 2011. The unemployment rate increased from 7 p.c. in 2008 to 8 p.c. in 2009 ; it is forecast at 8.8 p.c. in 2011. Following a brief period of disinflation during 2009, resulting from negative base effects influencing the movement in energy prices, inflation began rising again at the end of last year and during the initial months of 2010, owing to the recent rise in international oil prices and the euro’s depreciation. While this factor will continue to play during the coming months, the pressures exerted by wages are expected to be contained at first, before gathering strength at the end of the forecasting period as economic activity picks up. In all, as an annual average, inflation – which had been zero in 2009 – is forecast at 2 p.c. in 2010 and 1.9 p.c. in 2011. According to the NAI data, Belgium’s public finances recorded a deficit of 6 p.c. of GDP in 2009. In the macroeconomic context described above, and taking account of the measures adopted by the federal and regional governments, if the policy remains unchanged that deficit should come to 5 p.c. of GDP in 2010 and 5.3 p.c. in 2011. After having declined continuously since 1993, to reach 84.2 p.c. in 2007, the ratio of public debt to GDP has been rising again in 2008, mainly as a result of the capital injections and loans granted to financial institutions, and in 2009, due to the economic recession. The debt ratio is projected to rise further, although at a slower pace, over the projection horizon, from 96.8 p.c. of GDP in 2009 to 100.2 p.c. in 2010 and 103.1 p.c. in 2011.