Belgium

Belgium

Economic update - January 2021

Both the NBB’s business and consumer confidence indicators surprised on the upside in December. The business barometer resumed its growth path after the dip in November. According to this indicator, the business climate in the manufacturing industry even reached its pre-crisis level again, after having consistently gained strength since the month of June. The building industry was the only sector where the situation did not improve in December. The considerable strengthening of consumer confidence in December was attributable to consumers’ more favourable outlook on the economy, following vaccination hopes and hence an expected exit from the Covid-19 crisis in 2021.

The improvement of sentiment is of course good news, but one should bear in mind that both confidence surveys were conducted in the first half of December, at a moment when non-essential shops were only just allowed to reopen (that was on 2 December). The reopening of shops, albeit under certain restrictions, took place sooner than initially planned. In principle, the second lockdown was valid till 13 December, and people believed that after that date the rest of the economy would also reopen. In reality, bars and restaurants, but also other businesses like hairdressers, cinemas, etc. remained closed for longer.

The statistical relationship between Google’s mobility data and economic activity suggests that the Belgian economy will not have avoided another negative quarter at the end of last year. Even more, it indicates that the Q4 contraction was not negligible, although more moderate than the one registered in Q2 (see figure BE1). We now estimate that the economy fell back by 3% qoq in the last three months of the year. This is somewhat more positive than our previous estimate, due to stronger-than-expected sentiment in December, but still a more sizeable loss than the 1.5% drop published by the National Bank of Belgium (NBB). The upward revision of the fourth quarter growth would bring annual real GDP growth in 2020 to -7.1% in the KBC scenario. As the starting point at the end of 2020 is now estimated somewhat higher, the negative growth overhang in the real GDP forecast for 2021 will be smaller than previously estimated (i.e. -0.2% instead of -1.3%). 

No easy exit from Covid-19

Vaccines have brightened prospects for the Belgian economy in the medium term, but there are still plenty of challenges ahead in 2021. First, the current Covid-19 restrictions are likely to be eased only slowly as it will take time before a significant part of the population will be vaccinated. Moreover, the start of the vaccination campaign, albeit a game-changer, is itself coupled with uncertainty surrounding production and logistics challenges, the willingness of people to be vaccinated, the duration of the vaccine efficacy, etc. Next, although consumers’ fears of a rise in unemployment in the next 12 months continued to fade towards end 2020, the level remained historically high and likely will keep households’ precautionary savings at a higher level as well for a few quarters to come. Finally, increases in unemployment and bankruptcies are very likely going to materialize and also weigh on economic activity.

Besides the further developments of the pandemic, the roll-out of Brexit implies a specific element of risk as well. The EU-UK trade relationship increases trade barriers, i.e. customs formalities and regulatory checks and controls. Belgian exporters will need to adjust to new trading relationships, and this could result in some bottlenecks in trade in 2021.

Against the background of no easy exit from Covid-19 and no easy Brexit, we continue to believe that the recovery of the Belgian economy will remain sluggish till the summer. From mid-2021 and going into 2022, growth will accelerate in our scenario in line with the vaccine rollout and sufficient immunity of the population occurring. This altogether brings annual growth for 2021 to an estimated 2.2%. This is up from the 0.9% seen in the previous month, thanks mainly to a less negative growth overhang from 2020 (see above). Although the forecast for 2021 is revised upward relative to the December figure, it remains more conservative than the recovery trajectories put forward by some other organisations, including the NBB, which incorporate a relatively fast recovery path already from early 2021 on. In contrast, we see a relatively more dynamic annual growth of the Belgian economy in 2022 at 4.2%.

Economic forecasts

National accounts (real yearly change, in %)

              2020 2021 2022
Private consumption -4.6 5.2 5.9
Public consumption -1.6 4.9 1.8
Investment in fixed capital -13.7 -2.6 4.2
Corporate investment -15.7 -8.0 6.0
Public investment -6.7 5.7 2.4
Residential building investment -11.2 -1.5 3.7
Final domestic demand (excl. changes in inventories) -6.1 3.4 4.6
Change in inventories (contribution to growth) -1.6 0.0 0.0
Exports of goods and services -6.4 6.5 9.5
Imports of goods and services -7.1 7.3 10.2
       
Gross domestic product (GDP) -7.1 2.2 4.2
       
Household disposable income 0.0 1.4 2.0
Household savings rate (% of disposable income) 17.0 14.0 11.0

Equilibrium indicators 

              2020 2021 2022
Inflation (average yearly change, in %)      
Consumer prices (harmonised CPI) 0.4 1.5 1.4
Health index (national CPI) 1.0 1.2 1.4
       
Labour market      
Domestic employment (yearly change, in '000, year end) -61.5 -60.0 95.0
Unemployment rate (in % of labour force, end of year, Eurostat definition) 5.8 7.2 6.9
       
Public finances (in % of GDP, on unchanged policy)      
Overall balance -11.2 -7.6 -7.0
Public debt 117.1 120.5 121.1
       
Current account balance (in % of GDP) 0.6 -1.5 -1.0
       
House prices (average yearly change in %, existing and new dwellings, Eurostat definition) 4.5 -1.5 1.0

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