Economic Perspectives for Belgium

The flash estimate of Belgian GDP growth in the first quarter of 2022 came out at 0.3%, slightly above the euro area figure (0.2%). Value added was up on the previous quarter by 0.8% and 0.5% in construction and the service sectors, respectively, while it dropped back by 0.8% in manufacturing. The slowdown in quarter-on-quarter growth was expected (our estimate was at 0.2%) against the backdrop of the start of the war in Ukraine in the second half of the quarter. The National Accounts Institute said that the Q1 figure is surrounded by greater uncertainty than is normally the case with the flash estimate, owing to a lack of administrative data for the month of March. Hence, we should be cautious in interpreting the Q1 data as revisions are very probable.

Component data are not yet available, but the weak performance in manufacturing suggests that exports may have pulled back growth dynamics. Survey indicators are also pointing in that direction. Although the general NBB business indicator has been holding up well in the first months of the year, the assessment of export-book levels has deteriorated substantially from February on, in contrast to the euro area. This might well be a first sign of an ongoing worsening in Belgium’s competitive position. The combination of relatively strong inflation and wage indexation indeed threatens to erode relative cost competitiveness of Belgian companies, which already became visible in survey data (figure BE1). The upside is that the indexation mechanism forms a buffer to mitigate the negative impact of inflation on households’ purchasing power. Nevertheless, consumption growth probably slowed down in Q1, as the indexation does not fully offset the energy price hike and kicks in with the usual lag.

Unchanged scenario

After dropping sharply in March, consumer confidence recovered slightly in April. Producer confidence also firmed up, recovering the ground lost in previous month. The resilience of business sentiment is very striking in view of Russia’s war on Ukraine, and likely has to do with the still positive momentum from the post-pandemic reopening, especially in services. Meanwhile, the deterioration in the economic climate has also become visible in the labour market, with several indicators already starting to reverse. That is, for instance, the case for the amount of interim labour, the yoy dynamic of the number of job seekers and consumers’ fear for a rise in unemployment (figure BE2).

After the still positive growth in Q1 2022, we expect the quarterly growth rate of Belgian real GDP to fall back to -0.1% and 0.0% in Q2 and Q3, respectively, before recovering again to 0.2% in Q4. The Q2 figure implies a slight downward revision compared to previous month’s outlook. But in combination with the somewhat better than expected Q1 figure, this leaves our projection for real GDP growth forecast in the full year 2022 unchanged at 2.0%, a figure that is inflated by a big overhang effect from 2021 (i.e., 1.8 percentage points).

Both CPI and HICP inflation stabilised in April at 8.3% and 9.3%, respectively. Energy price inflation slowed down a bit, but the bad news is that price increases are spreading into other goods and services more broadly. In April, more than one third of all goods and services in the CPI had an inflation of between 3-6% and a quarter had inflation of above 6% (figure BE3). We kept our scenario for Belgian inflation unchanged, meaning that the rate is expected to decline in the course of the year but to remain high, above 7%, till year end. For the full year 2022, inflation is forecast to average 8.3 %.

Economic forecasts May 2022

National accounts (real yearly change, in %)

              2021 2022 2023
Private consumption 6.4 3.9 1.5
Public consumption 4.4 4.6 1.5
Investment in fixed capital 7.8 0.0 3.1
Corporate investment 8.0 -1.2 3.6
Public investment 2.6 2.6 2.5
Residential building investment 10.0 2.0 1.7
Final domestic demand (excl. changes in inventories) 6.3 3.1 1.9
Change in inventories (contribution to growth) -0.5 0.0 0.0
Exports of goods and services 9.6 5.0 4.6
Imports of goods and services 9.1 6.2 5.5
Gross domestic product (GDP) 6.2 2.0 1.1
Household disposable income 0.5 0.4 2.0
Household savings rate (% of disposable income) 16.0 13.3 13.7

Equilibrium indicators 

              2021 2022 2023
Inflation (average yearly change, in %)      
Consumer prices (harmonised CPI) 3.2 8.3 3.0
Health index (national CPI) 2.0 7.9 3.3
Labour market      
Domestic employment (yearly change, in '000, year end) 109.0 25.0 35.0
Unemployment rate (in % of labour force, end of year, Eurostat definition) 5.7 5.9 6.0
Public finances (in % of GDP, on unchanged policy)      
Overall balance -5.5 -4.9 -4.7
Public debt 108.2 107.7 109.8
Current account balance (in % of GDP) -0.4 -2.5 -1.5
House prices (average yearly change in %, existing and new dwellings, Eurostat definition) 7.1 4.5 2.5

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