Belgian GDP growth decelerated further in the fourth quarter of 2022 to 0.11% qoq. The growth figure was revised slightly up from 0.07% in the preliminary estimate. The breakdown by GDP components shows a continued and surprisingly dynamic qoq growth of private consumption (+1.1%). Households however reduced their investment in housing (-2.4%), for the third quarter in a row. Public consumption was up by 0.9%, while public investment recorded a fall (-5.4%). Business investment picked up by 0.5%, after having declined for two consecutive quarters. Both exports and imports fell by 0.7%, resulting in a moderate 0.1 percentage point positive growth contribution of net exports. Finally, inventories were a big drag on Q4 growth, with a negative contribution of 0.5 percentage points. Economic growth over 2022 as a whole amounted to 3.1%, a high figure that masks a big carryover effect from 2021. The services sector (+4.2%) was the only driver of annual 2022 growth, as value added declined in industry (-0.3%) and remained stable in construction.

While Q4 GDP growth in Belgium showed a clear deceleration compared to the previous quarters, it was above the euro area figure, which came in at -0.03% according to revised final statistics. Belgium and the Netherlands were the only two EMU countries that avoided negative growth of private consumption in the final quarter. In Belgium, the surprising resilience in consumption during the energy crisis was mainly due to the inflation protection of household income through the automatic wage indexation as well as massive government support. The strong labour market was another factor that has supported the robust growth of consumption in the past quarters. Moreover, the savings rate increase after Russia’s invasion of Ukraine on 24 February remained limited, despite the sharp fall in consumer confidence (see figure BE1). 

Continued moderate growth

Despite the overall good performance of the labour market in 2022, employment growth lost traction in the last quarter, with only 2.200 people added to the workforce (see figure BE2). Also, unemployment is on the rise again, with the number of job seekers up by 6.3% in February compared to a year earlier. More structurally, the labour market remains tight. As a consequence, net job creation, while slowing, should remain positive. Falling inflation combined with delayed indexation will sustain households’ purchasing power and hence we expect private consumption to continue to drive GDP growth in the quarters ahead. In contrast, elevated and rising interest rates will continue to weigh on households’ residential investments. The environment for businesses remains challenging, as witnessed by the slow recovery of general producer confidence. More specifically, the assessment of order-books in both manufacturing and building has been trending down. Expected demand in the building sector even is at historically low levels. The weak outlook for industry makes us believe that qoq growth of the Belgian economy remains subdued in the current and coming quarters.

As a result, we kept our scenario for the quarterly path of GDP growth in 2023 unchanged, being one of a continued but very moderate expansion of economic activity. For the year as whole, we however slightly upgraded the growth forecast from 0.6% to 0.7%, resulting from a carryover effect due to the minor upward revision of Q4 2022 growth. The uncertainty surrounding this forecast remains high and both more negative as well as more positive outcomes are definitely possible. On the negative side, the deteriorating cost competitiveness of companies and the tightening financial conditions may cause stronger knock-on effects on export and investment activities. On the positive side, private consumption may continue to surprise on the upside, given the ongoing revival in consumer confidence and  the preservation of spending power.

Inflation slowing rapidly

Belgian HICP inflation posted an unexpectedly large fall in February. It dropped to 5.5%, from 7.4% in January, due to a new big fall in energy inflation into negative territory (-14.5% yoy). Inflation was down more strongly in Belgium than in the euro area, i.e. -1.9 compared to -0.1 percentage points according to the preliminary estimate. Belgium recorded the second-lowest inflation rate of all euro area countries in February, after Luxembourg. A year ago, Belgium’s inflation differential with the euro area peaked because energy price inflation was then rising much faster. Now just the opposite is happening (see figure BE3). Underlying price pressures intensified further, though, with core inflation (excluding energy and food) reaching a new record of 6.3%. Still a huge share of goods and services (i.e., almost one third) in the consumer basket shows an inflation reading of 6% or above. Food prices in particular continue to soar. Following the downward surprise in February’s headline inflation reading, we nevertheless revised downward our outlook for average inflation in 2023 to 4.6%, from 5.2% in last month’s forecast. If the outlook comes true, Belgium’s inflation in 2023 will be below euro area inflation (forecast at 5.7%) for the first time since 2013.