Economic projections for Belgium – Spring 2013

The Bank’s new macroeconomic projections for 2013 and 2014 were produced in a low-key international context featuring wide variations in performance between the main economic regions and an apparent disconnect between the real economy and the financial sphere. On the one hand, a vigorous recovery has been taking place since the end of 2012 in emerging markets and activity in the US is picking up as well, while, on the other hand, activity has remained hesitant in the euro area, with some Member States continuing to record a sharp contraction in activity and very high unemployment rates. According to the Eurosystem’s projections, GDP is set to contract again in 2013 in the euro area, by around 0.6 %, and to record modest growth of around 1.1 % in 2014. Inflationary pressures should decline sharply : inflation in the euro area is projected to fall to 1.4 % in 2013 and 1.3 % in 2014, in a context of moderating import prices and weak economic activity. The projections for Belgium show zero activity growth in 2013 – the same as in the forecasts published in December 2012 – and a modest growth of 1.1 % in 2014. Regarding the short-term activity profile, a gradual recovery is still expected for the second half of the year, after a stagnation in the first half. In 2013, only net exports will contribute positively to activity growth, as all the components of domestic demand – except public consumption – will remain unchanged or record negative growth in volume terms. However, the positive contribution from foreign demand is due to the weakness of imports rather than the dynamism of exports, which is expected to remain relatively anaemic. Private consumption is likely to remain stagnant in 2013, against the background of the meagre growth of households’ disposable income, and some rise in the savings ratio, fuelled by anxiety over short- and medium-term income prospects. Low capacity utilisation levels and thin order books are likely to continue to depress business investment this year. In 2014, however, the domestic demand components are set to expand again, and should become the main engine of activity. As a result of the adverse economic conditions and the fall in public employment, domestic employment is set to continue falling by 26 000 units in the course of 2013, and expected to rise only very slightly in 2014, by barely 9 000 units. In the face of the protracted crisis which has weakened their financial position, and the tightening of conditions for access to the system of temporary unemployment, firms can no longer afford to retain excess workers in relation to their sales volume and will therefore need to implement speedier redundancies. Consequently, the unemployment rate is forecast to continue rising from 7.6 % in 2012 to 8.7 % in 2014. Inflation is forecast to decline sharply over the projection horizon, coming down from 2.6 % in 2012 to 1 % in 2013 and 1.2 % in 2014. That picture is attributable to the expected fall in oil prices on the international markets, and to the changes seen on the gas and electricity markets, where various suppliers implemented substantial cuts in tariffs at the beginning of 2013. Domestic pressure on costs – notably labour costs – is likely to remain restrained, taking into account the freeze in real collectively agreed wages in the private sector. After having reached 3.9 % of GDP in 2012, the Belgian government deficit is expected to fall to 2.9 % of GDP in 2013, before rising again to 3.3 % of GDP in 2014 as a result of the disappearance of one-off factors. The government debt ratio, which came to 99.8 % of GDP at the end of 2012, is forecast at 101.1 % of GDP at the end of 2013 and 102.9 % of GDP at the end of 2014.