Resilient Q1

The earlier flash estimate of Belgium’s Q1 2022 GDP growth was revised up considerably by the National Accounts Institute, from 0.3% to 0.5% quarter-on-quarter, making the start of the year better than initially thought. The 0.5% quarter-on-quarter increase was slightly below the Q1 growth rate in the euro area, which was also revised higher from 0.3% to 0.6% (mainly due to very positive Irish figures). Belgian quarter-on-quarter growth in the first quarter was driven by all components, except public spending and public investment. The latter was down sharply (-13.1%), after having been boosted over the previous two quarters by exceptional military purchases. In contrast to the euro area, private consumption rose moderately in Belgium (+0.5%), exclusively due to purchases of non-durables. The durable component contracted because of a big drop in the purchases of motor vehicles. Households also increased their investment in housing (+2.9%), while business investment rose sharply too (+2.7%). The latter was positively impacted by a number of specific shipbuilding transactions abroad.

The resilient Q1 result for final domestic demand (i.e., excluding inventories) suggests that the impact of Russia’s invasion of Ukraine and the related geopolitical uncertainty still remained contained. The good performance likely reflects the lifting of the pandemic-related containment measures in the final quarter of 2021, which had a carry-over effect on growth in the first quarter of this year. However, the large growth contribution of inventories (+0.5 percentage points) may point at a slowdown in consumer demand in the course of the quarter. Moreover, both exports and imports saw their first decline in Q1, after rising for six quarters in a row. As imports fell more sharply than exports, net exports still contributed positively to Q1 GDP growth (+0.1 of a percentage point).

Worsening outlook

Survey indicators as well as some hard data are pointing at a worsening of the economic climate, mostly related to the geopolitical situation and the mounting inflationary pressures. Consumer confidence recovered only marginally from its March collapse in April and May, and business managers’ assessment of demand in the retail trade sector for the next 3 months fell substantially in May (see figure BE1). 

Also, on the labour market several indicators have started to reverse. E.g., the year-on-year decline in the number of job seekers is softening since the end of 2021 and the harmonised unemployment rate showed its first increase in April after more than a year of decline (see figure BE2).

After the still solid rise in the first quarter, economic activity is likely to fall or stagnate in the current and next quarter. The dramatic rise in uncertainty and the temporary drop in purchasing power following high inflation and lagging wage indexation will likely hit private consumption in Q2 and Q3. Rising input costs for companies and increased uncertainty will slow investment growth. All in all, we now expect a contraction in Q2 (-0.3%) and stagnation in Q3 (0.0%). We have downgraded the quarterly growth path slightly from Q4 2022 onwards on more aggressive monetary tightening by the ECB, in line with the adjusted euro area scenario (see above).

In combination with the upwardly revised Q1 figure, this brings our projection for Belgian real GDP growth in the full year 2022 a bit higher to 2.1%, from 2.0% previously. We continue to stress that the 2022 growth figure is inflated by a big overhang effect from 2021. The outlook for growth in 2023 was revised down from 1.1% to 0.8%. This leaves us being relatively pessimistic compared to recent official institutions’ forecast (see figure BE3). Both CPI and HICP inflation resumed their upward trend in May, to 9.0% and 9.9%, respectively. That month, one in three goods and services in the national CPI had price increase of 6% or above, and seven in ten an increase of 3% or above, indicating that price increases are spreading further into more goods and services. Due to both the upward surprise in recent inflation data and an upward revision of our oil price scenario (see above), we now see average inflation in Belgium at 8.7% in 2022 and 3.4% in 2023, up from 8.3% and 3.0% respectively.