Economic Perspectives for Belgium

According to the flash estimate by the National Accounts Institute (NAI), Belgian real GDP posted 0.3% growth in the first quarter of 2024 relative to the final quarter of 2023. The growth figure was broadly in line with what we had expected (0.25%). This time, Belgian growth was equal to growth recorded in the euro area, following three quarters of above euro area growth (see figure BE1). 

Remarkably, the growth contribution of the three main sectors turned: value added in real terms slowed in services (+0.3% qoq) and fell in construction (-0.2%), while in industry it rose by 0.3% (see figure BE2). A detailed breakdown of Belgian Q1 growth by components is not yet available. Likely, real GDP growth remained supported by private consumption, while housing investment continued to decline. Excluding the exceptional transactions (i.e., the foreign sale of ships) that have strongly affected investment and exports in Q4 2023, corporate investment growth likely continued its positive growth path, while the contribution to GDP growth from net exports should also have improved.

Industrial recovery

Full year 2023 GDP growth was revised slightly down by the NAI from 1.5% to 1.4%. Value added in industry was down 3.2% in volume terms last year, instead of 3.1% reported earlier, while in services positive growth was at 2.5%, instead of 2.6% reported earlier. Construction recorded positive growth of 1.9% in 2023 (unchanged figure). The hard Q1 2024 data, as well as several survey indicators indicate that the worst in the manufacturing industry may lie behind us. Most notably, the export-order books appraisal improved substantially in April, suggesting that the recent bottoming out of world trade has started to support Belgian export growth. Also, after having trended down and up, respectively, since the start of 2022, the capacity utilisation rate in manufacturing and the share of businesses reporting insufficient demand improved in Q2.

Consumer confidence dipped slightly in April. The announcement of the bankruptcy and closure of several companies (in particular, bus manufacturer Van Hool) did not go unnoticed by consumers, who became a lot more concerned about how the job market will develop in the next months. We should not become too worried about Belgium’s labour market, however, as it generally remains quite resilient. The harmonised unemployment rate has stayed stable since the summer of 2022 at close to 5.5%. Moreover, the employment outlook of businesses, as reported in the NBB barometer, has been showing less moderation in recent months. We see continued employment growth ahead, albeit less than in the three previous years. In our scenario, the Belgian economy is expected to add 0.4% and 0.5% net jobs on average in 2024 and 2025, respectively, as against 0.8% in 2023.

Unchanged growth and inflation scenario

We kept our scenario for Belgium’s real GDP growth unchanged. At 1.2% for both 2024 and 2025, the growth outlook is a bit below the EC’s spring forecast published mid-May (1.3% and 1.4%, respectively). Our inflation outlook stays at 3.8% for 2024 and 2.1% for 2025, which is slightly below the EC’s forecast (4.0% and 2.3%, respectively). In April, Belgian HICP inflation rose sharply from 3.8% to 4.9%. The upswing was expected and is driven by energy and, more specifically, the disappearance of the downward impact of previous government measures to ease household energy bills. Energy price dynamics have caused Belgian HICP inflation to rise well above euro area inflation, by no less than 2.5 percentage points in April. At 4.9%, Belgium’s inflation was the highest among EU27 countries in April. The good news is that Belgian core inflation (HICP excluding energy and food) was down again, from 3.8% to 3.5%.

In our previous Economic Perspectives publication, we reported on the rebound of Belgium’s house prices in the final quarter of 2023 (+2.2% qoq according to Eurostat’s harmonised index). The NAI recently published Q4 data on household disposable income, which allowed us to update the KBC Economics' model-based overvaluation estimate for Belgium’s housing market. The mathematical approach seeks a long-term equilibrium relationship between house prices and their fundamentals. In addition to household disposable income, the latter include the mortgage interest rate, demographics (number of households) and changes in property taxes. The extent to which the effective price trend deviates from the equilibrium value calculated by the model (i.e., the error term in the regression equation) can then be viewed as a measure of overvaluation. Thus quantified, the overvaluation was at 8.1% in Q4 2023, up from 7.2% in Q3 2023 but still well below the peak of 15.6% in Q1 2022 (see figure BE3). The increase in Q4 was mainly due to the renewed dynamism in house prices at the end of the year, after the soft landing seen in previous quarters.

Economic forecasts May 2024

National accounts (real yearly change, in %)

              2023 2024 2025
Private consumption 1.4 1.5 1.4
Public consumption 1.6 1.3 1.0
Investment in fixed capital 3.6 -2.0 2.4
Corporate investment 6.0 -2.6 2.9
Public investment 6.3 5.2 2.6
Residential building investment -5.7 -4.5 0.6
Final domestic demand (excl. changes in inventories) 2.0 0.6 1.6
Change in inventories (contribution to growth) 0.1 0.2 0.0
Exports of goods and services -3.3 -0.6 2.3
Imports of goods and services -2.6 -1.2 2.8
Gross domestic product (GDP) 1.4 1.2 1.2
Household disposable income 6.9 1.8 1.4
Household savings rate (% of disposable income) 14.5 14.9 14.7

Equilibrium indicators 

              2023 2024 2025
Inflation (average yearly change, in %)      
Consumer prices (harmonised CPI) 2.3 3.8 2.1
Health index (national CPI) 4.3 3.5 2.1
Labour market      
Domestic employment (yearly change, in '000, year end) 25.7 20.0 30.0
Unemployment rate (in % of labour force, end of year, Eurostat definition) 5.6 5.6 5.5
Public finances (in % of GDP, on unchanged policy)      
Overall balance -4.4 -4.5 -4.9
Public debt 105.2 105.7 107.4
Current account balance (in % of GDP) -1.0 -0.5 -1.0
House prices (average yearly change in %, existing and new dwellings, Eurostat definition) 2.5 2.8 3.0

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