Economic projections for Belgium - Spring 2012

The current economic situation in the euro area is causing serious concern. While the measures adopted by the European authorities since the end of 2011 did temporarily ease the uncertainty and financial tensions at the beginning of 2012, renewed nervousness on the sovereign debt markets and among the economic agents has emerged in recent months, owing to the very worrying situation in the countries undergoing significant budgetary adjustments and / or radical restructuring of their economy. The resulting contagion is affecting financial institutions in the euro area. The projections for 2012 and 2013 presented in the article are based on the assumption that these tensions will ease, on the premise that the euro area crisis does not grow any worse and does not have irreparable repercussions on systemic financial institutions. External demand is assumed to strengthen gradually, with interest rates remaining low, while the oil price is expected to record a modest fall. In the euro area, the economic situation should gradually improve in the second half of 2012, and the recovery should strengthen in 2013. Significant divergences between countries are expected to persist. Inflation is projected to decline gradually, the main factor being the expected fall in oil prices. Since mid-2011, the Belgian economy has felt the effects of the worsening financial tensions and deteriorating economic situation in the euro area. GDP growth is forecast to reach just 0.6 % in 2012, rising to 1.4 % in 2013. The outlook is slightly more favourable than for the euro area as a whole. In the absence of any adjustment having a major impact on domestic demand, activity in Belgium, in Germany’s wake, continues to exhibit some resilience, as was the case during the 2008-2009 recession. The slowdown in activity in 2012 followed by a moderate revival in 2013 should be directly reflected in the employment market, where only 3 300 additional jobs are forecast to be created in net terms in 2012, and just over 27 000 in 2013. The weakness of job creation is also due to the budget restraint which the new government has introduced for the federal authorities and health care. Unemployment is expected to rise to 7.5 % in 2012 and 7.7 % in 2013. Since peaking in mid-2011, inflation has fallen steadily in Belgium and should continue to ease, averaging 2.6 % in 2012 and 1.5 % in 2013, the main factor being the expected fall in oil prices. Before subsiding in 2013, 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, which should still be strong. The general government deficit is projected to fall to 2.8 % in 2012, deteriorating slightly thereafter, and rising to 3.1 % in 2013. The public debt is set to rise significantly in 2012, to 98.9 % of GDP, owing to exogenous factors relating to the Greek rescue package and participation in the European Stability Mechanism, and is projected to record a smaller increase in 2013 to reach 99.2 % of GDP.