Economic projections for Belgium - Autumn 2012

Since the publication of the Bank’s previous macroeconomic projections in June 2012, the global economic environment has become much less buoyant. In the euro area, economic activity is now also slowing down rapidly in countries that were previously less affected by the crisis. Against this backdrop, the Eurosystem projections for the euro area were revised substantially downwards. Annual growth in 2012 is now expected to be around –0.5 % in 2012, and the midpoint of the projection range for 2013 remains in negative territory. The projections are based on a set of commonly-agreed assumptions. World demand, in particular, is expected to recover in the course of 2013, and expanding exports should pave the way for a return to higher growth in the second half of 2013, even though domestic demand will continue to be depressed by the ongoing necessary fiscal consolidation and macroeconomic adjustment processes in many euro area countries. In Belgium, the gradual recovery that was expected by most institutions in the spring on the back of rather supportive data at the beginning of the year did not materialise, partly because of the euro crisis flare-up in late spring. Economic activity contracted sharply in the second quarter and remained flat in the third. The outlook for the immediate future is rather gloomy. This is due to both the slowing down of export markets, particularly in the euro area, and low business and consumer sentiment, that have declined further from the levels reached in the summer. Growing concerns about employment prospects (fuelled by a string of announcements of job losses due to firm closures) and, more generally, uncertainty regarding future income levels, are likely to curb domestic demand from households, which has been on a clear downward trend since early 2011. Low capacity utilisation levels and thin order books may depress private investment. All in all, the current projections point to slightly negative annual growth in 2012 (–0.2 %). While a recovery is now expected for the spring of 2013, annual growth is currently projected to be around zero in that year. The downward revision of activity growth for both 2012 and 2013 will also affect the labour market projections. Employment growth remains slightly positive in 2012, but a loss of around 15 000 jobs is expected in 2013. Reductions in average working time are expected to absorb the cyclical downturn to a lesser extent than in the 2008-2009 recession. The unemployment rate is projected to rise to 7.4 % in 2012 and 8.1 % in 2013. Since peaking in mid-2011, inflation has fallen steadily in Belgium and should continue to ease, averaging 2.6 % in 2012 and 1.6 % in 2013. The primary factor here is the assumed fall in oil prices. Underlying inflation is set to remain high in 2012 owing to the effect of the increase in certain indirect taxes and the rise in labour costs. These projections do not yet take into account the measures announced by the federal government on 20 November 2012 in the context of the agreement on the 2013 budget and on policies to increase competitiveness by slowing down nominal wage growth, since the details were not known before the projection cut-off date. For this reason, no public finance projections for 2013 are presented in this article, as they will be significantly affected by the consolidation measures, in particular. In 2012 the general government deficit is estimated to fall to 2.8 % of GDP. The public debt is set to rise further in 2012, to 100.6 % of GDP, partly owing to exogenous factors relating to the financial support for other euro area countries.