1. BELGIUM
Towards broad-based growth
A steady rebound in economic activity is projected to slowly speed up over the forecast horizon with
real GDP growth reaching 1.4% in 2014 and 1.6% in 2015. Consumer spending is projected to remain
the main driver of growth, supported by more vigorous investment growth towards 2015. A combination
of modest wage growth, lower energy prices and tax measures is set to keep inflationary pressures at
bay. No further improvement in public finances is expected.
The fourth quarter of 2013 upheld the pattern
displayed in preceding quarters of firming domestic demand reinforcing an export-driven recovery.
Quarterly growth reached 0.5%, the strongest in
almost three years, while annual growth reached a
modest 0.2%. The good performance towards the
end of the year provides the Belgian economy with
a robust starting position for 2014.
Graph II.1.1: Belgium - Real GDP growth and contributions
4
pps.
contained, considering the recent positive trend for
credit conditions. Prospects for construction
remain weak despite the first cautious signs of a
materialising recovery in the sector.
Convalescing business cycles in trading partner
economies are reflected in export projections. At
the same time, more robust domestic demand is
expected to push up import growth and make the
recovery less export-driven, with net trade
contributing negatively to overall growth in 2015.
forecast
3
Slow-moving labour market and low inflation
environment
2
1
0
-1
-2
-3
01
02
03
04
05
06
07
08
09
10
11
12
13
Inventories
Net exports
Dom. demand, excl. invent.
Real GDP (y-o-y%)
14
15
Household spending and company investment
to become growth engines
Household consumption growth in the first half of
2014 is not expected to match the strong figures of
recent quarters with consumer spending held back
by lagging labour market dynamics and slow
disposable income growth. As these factors slowly
unwind in the slipstream of a mending economy,
consumption growth is forecast to bolster towards
the end of the year. In 2015 consumer spending is
projected to contribute 1pp. to GDP growth.
Equipment investment is forecast to spearhead
capital formation, which, after two years of
negative growth, is projected to expand by 1.6% in
2014 and 3.2% in 2015. Soft indicators point to a
continuation of the measured growth in industrial
production. The latter has pushed the industry's
capacity utilisation to the long-term average level,
heralding acceleration in corporate investment.
This would result in higher credit demand. Risks
of credit supply falling short of demand appear
46
The latest labour market parameters sketch a
roughly stable situation. On the one hand, a recent
string of company closures and restructurings is
expected to exert further upward pressure on the
unemployment rate. On the other hand, leading
indicators seem to bear positive news with data for
temporary unemployment and interim employment
pointing towards a slow turnaround. Still, job
creation in the private sector is projected to remain
modest in the short term, while the public sector is
forecast to feature continued job losses. All in all,
unemployment would rise slightly in 2014 and
average 8.5%, as compared to 8.4% in 2013. Faster
job creation in 2015 would reverse these dynamics,
though the unemployment rate is still expected to
average 8.2% next year.
Falling energy prices and low price pressures from
unprocessed food items largely account for
headline inflation of around 1% in recent quarters.
Core inflation, which makes abstraction of both
categories, has been stable at a higher level, given
steady price growth for other items, notably
services. The lowering of the VAT on electricity
consumption by households since April will exert
further downward pressure on inflation over the
coming quarters. Projections put inflation at 0.9%
in 2014 and 1.3% in 2015. This low inflation
environment confines overall wage growth, which
not only limits price pressures, but also results in
lower growth of unit labour costs.
Member States, Belgium
No further improvement in public finances
expected
The general government deficit reached 2.6% of
GDP in 2013. The revenue ratio increased from
51.0% of GDP in 2012 to 52.0% in 2013, partly
due to one-off revenue measures (0.6% of GDP)
such as temporary regimes for tax regulation and
taxes on dividends. Total government expenditure
rose from 54.3% of GDP (excluding a 0.8% of
GDP one-off impact of a capital transfer to Dexia)
to 54.7%. The biggest drivers for the increase were
the public wage bill and social benefits, which
were both impacted by strong past inflation
through the indexation mechanism. On the other
hand, two factors had a downward impact on
expenditure: interest expenditure which fell by
0.2% of GDP due to the decline in interest rates,
and the impact of the electoral cycle on public
investment of local government which dropped by
0.1% of GDP.
In 2014, the deficit is expected to stabilise.
Expenditure growth is forecast to be limited due to
the low inflation environment, expenditure
reducing measures taken at different levels of
government, and a further decline in investment by
local government. Also revenues are projected to
increase less than GDP, due to lower impact of
one-off measures compared to 2013, low wage
growth, and the decrease of the VAT rate on
electricity (-0.1% of GDP).
In 2015, the deficit is expected to deteriorate to
2.8% of GDP under the usual no-policy-change
assumption, despite the projected strengthening of
economic growth. This is due to the expiration of
one-off measures, the impact of expansionary
measures already decided upon (such as the VAT
reduction on electricity and the reduction in social
security contributions), and an autonomously
rising trends in social expenditure. After having
improved by ¾% of GDP in 2013, the structural
balance is not expected to show further
improvement in 2014. In 2015, it is expected to
deteriorate by about ¼% of GDP due to the abovementioned factors.
The general government debt has been
substantially revised upwards since the winter
2014 forecast due to the reclassification of a
number of corporations into the government
sector. The debt ratio came out at 101.4% of GDP
at the end of 2013 and is forecast to rise slightly
further in 2014, almost entirely due to stock-flow
adjustment, and to start declining in 2015.
Table II.1.1:
Main features of country forecast - BELGIUM
2012
GDP
Private Consumption
Public Consumption
Gross fixed capital formation
of which: equipment
Exports (goods and services)
Imports (goods and services)
GNI (GDP deflator)
Contribution to GDP growth:
Annual percentage change
bn EUR Curr. prices
% GDP
94-09
2010
2011
2012
2013
2014
2015
375.9
100.0
2.0
2.3
1.8
-0.1
0.2
1.4
1.6
198.9
52.9
1.7
2.8
0.2
-0.3
0.7
1.6
1.9
93.8
25.0
1.8
0.6
0.7
1.4
0.7
1.0
0.7
76.5
20.4
2.2
-1.1
4.1
-2.0
-2.5
1.6
3.2
28.2
7.5
2.9
-10.9
4.8
-3.2
-1.7
3.1
4.9
323.7
86.1
3.9
8.1
6.4
1.8
1.7
3.0
4.7
319.6
85.0
3.8
7.5
6.8
1.3
0.9
2.7
5.1
376.9
100.3
1.9
4.8
1.0
-0.8
-0.2
1.3
1.6
1.7
1.4
1.1
-0.2
0.1
1.4
1.8
0.0
0.3
0.8
-0.4
-0.5
-0.1
0.0
0.2
0.6
-0.2
0.4
0.7
0.2
-0.2
0.9
0.7
1.4
0.2
-0.2
0.3
0.8
8.3
8.3
7.2
7.6
8.4
8.5
8.2
2.6
1.4
3.1
3.7
2.0
0.6
2.2
1.6
-0.3
2.7
4.1
1.5
-0.6
1.4
Domestic demand
Inventories
Net exports
Employment
Unemployment rate (a)
Compensation of employees / head
Unit labour costs whole economy
Real unit labour cost
Saving rate of households (b)
GDP deflator
Harmonised index of consumer prices
Terms of trade goods
Trade balance (c)
Current-account balance (c)
Net lending (+) or borrowing (-) vis-a-vis ROW (c)
General government balance (c)
Cyclically-adjusted budget balance (c)
Structural budget balance (c)
General government gross debt (c)
-0.1
-2.3
0.7
2.1
0.3
-2.0
0.1
17.3
15.2
14.1
15.2
13.9
13.7
13.8
1.7
2.1
2.0
1.9
1.2
1.4
1.4
1.9
2.3
3.4
2.6
1.2
0.9
1.3
-0.5
-2.1
-2.1
0.2
-0.3
0.5
-0.2
2.6
-0.8
-1.6
-1.5
-1.4
-1.0
-1.6
4.1
2.6
0.5
-0.2
-0.3
0.3
-0.3
-0.3
3.9
2.5
0.3
-0.3
-0.4
0.4
-1.6
-3.8
-3.8
-4.1
-2.6
-2.6
-2.8
-1.9
-3.4
-3.7
-3.3 -
-1.7
-2.0
-2.5
-
-3.4
-3.5
106.3
96.6
99.2
-3.0 101.1
-2.3
-2.3
-2.5
101.5
101.7
101.5
(a) Eurostat definition. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
47