Economic projections for Belgium – Autumn 2011

The economic and financial environment has become much gloomier in recent months, with the slowdown in activity and international trade, the dramatic worsening of the sovereign debt crisis in the euro area and its impact on financial institutions, and the plummeting confidence of business leaders and consumers. The prospects for the euro area have therefore been sharply downgraded since all the main categories of demand are likely to contribute to the weakness of activity, including public expenditure on consumption and investment in the countries implementing fiscal consolidation measures. In Belgium, during the summer of 2011, the deterioration in the external environment, the rising financial tensions and the accompanying heightened uncertainty halted the recovery apparent since mid-2009. According to the NAI’s flash estimates, GDP stagnated in the third quarter and growth is expected to remain close to zero at the end of the year and in early 2012. Activity is expected to pick up thereafter, but the revival is likely to be modest. GDP growth is estimated at 2 % in 2011 and 0.5 % in 2012. These figures have been revised downwards by 0.6 and 1.8 percentage points respectively since the projections published in June. The slowdown in activity has brought a marked reduction in job creation, even though the figures are still supported by the expansion in the number of persons employed under the service voucher system and in the health sector and other non-market services. In net terms, the increase in the number of persons employed is expected to fall from around 56 000 units in the course of 2011 to 5 000 in 2012. The declining trend in unemployment, down from 8.5 % in the spring of 2010 to 6.6 % in October 2011, will be reversed in 2012. On average, the harmonised unemployment rate is put at 7 % for that year. While the recovery of GDP gradually spread to all factors of demand up to the second quarter of 2011, the resurgence of financial tensions and the widespread deterioration in the business climate and the outlook will probably affect both exports and demand for household consumption and private investment. The rise in energy prices has propelled overall inflation to more than 3 % since the beginning of 2011. Taking account of the assumption of a slight dip in oil prices compared to the previous year, inflation should gradually subside during 2012. As an annual average, inflation is forecast at 3.5 % in 2011 and 2.4 % in 2012, which will fuel the rise in labour costs. The projections for public finances presented in this article do not go beyond 2011, since the budgetary agreement concluded on 26 November 2011 in connection with the formation of the federal government came after the cut-off date for the projections. Public finances are expected to record a deficit of 4.2 % of GDP at the end of 2011. The government debt ratio has increased as a result of the loans contracted by the Belgian State to finance the purchase of Dexia Bank Belgium and by the loans granted to Greece, Ireland and Portugal. It is set to rise from 96.2 % of GDP in 2010 to 97.7 % in 2011.