Economic projections for Belgium – Spring 2016

The article presents the new macroeconomic projections for Belgium for the 2016-2018 period, produced by the Bank as part of the Eurosystem’s projection exercises. The global economy has slowed further in recent months, mainly influenced by adverse conditions emanating from the emerging economies. In the euro area, however, activity continued to expand at a fairly sustained rate, despite the gradual dissipation of two factors which had done much to stimulate growth last year, namely the fall in oil prices and the depreciation of the euro. According to the Eurosystem’s projections, real GDP in the euro area will rise by 1.6 % this year and 1.7 % in 2017 and 2018. Inflation will remain very low in the euro area this year, at 0.2 %, but is forecast to pick up subsequently to reach 1.3 % in 2017 and 1.6 % in 2018, as a result of rising commodity prices and strengthening activity. In Belgium, activity grew at a slower pace at the beginning of the year, partly as a consequence of the terrorist attacks. Having reached 1.4 % in 2015, growth is expected to dip to 1.3 % in 2016 before strengthening slightly thereafter to 1.5 % in 2017 and 1.6 % in 2018. Domestic demand will be the main engine of growth in Belgium over the projection horizon. Labour market developments will remain dynamic : in cumulative terms, over the period 2016-2018, net job creations are expected to amount to 140 000 units, with the unemployment rate falling to 7.8 % of the labour force by 2018. Inflation should average 1.6 % in 2016 in Belgium, 1.8 % in 2017 and 1.9 % in 2018. The increase in indirect taxes is likely to fuel inflation in 2016, while in 2017 and 2018 inflation will be driven more by higher commodity prices and by growing domestic cost pressures originating from wages. Only taking account of the fiscal measures subject to the guidelines for the Eurosystem projections exercises, the public deficit will rise to 2.8 % in 2016, exacerbated by exceptional expenditure (security, migrant crisis) and by the reduction in the ratio of tax revenues to GDP, before declining to 2.4 % of GDP in 2017 and in 2018. Government debt is projected to stabilise at around 106 % of GDP in 2018.