According to the preliminary estimate of the National Accounts Institute (NAI), third quarter Belgian real GDP grew by 0.50% qoq. The strong growth figure was well above what we had expected (0.12%) and followed an upwardly revised 0.33% expansion in the second quarter (from only 0.16% published previously). Remarkably, a longer series of quarterly growth rates of the Belgian economy was revised by the NAI, with annual real GDP growth in 2020 (-5.3%), 2021 (6.9%) and 2022 (3.0%) appearing to have been both better and worse than previously reported (-5.4%, 6.3% and 3.2%, respectively). The Belgian Q3 growth figure (0.5%) came out much more positive than that of the euro area (-0.1%) and neighbouring countries Germany (-0.1%) and France (0.1%). The initial Q3 estimate shows that value added in the services sector rose by 0.8% qoq, which is roughly the same rate as in previous quarters. Despite the ongoing cooling of the housing market, value added growth in the building industry strengthened to 0.6%. In the manufacturing industry, value added once again contracted, albeit less than in the two previous quarters, by 0.6%.

Substantial GDP revisions

According to the revised GDP data, the Belgian economy grew an extra 0.6 percentage points over the period Q1 2022 - Q2 2023 compared to the previously released data. A few striking facts follow regarding GDP component data (figure BE1). Most notably, private consumption growth proved to have been less dynamic according to the revised data, while corporate investment grew much stronger than reported previously. Overall, final domestic demand remained the main growth driver in the revised data over the period mentioned, while the growth contribution of net exports was even slightly more negative. Component data for Q3 2023 growth are not yet available. In our view, there is a high probability that the relatively high 0.50% GDP growth in the third quarter will eventually be revised downward. In the press release, the NAI itself mentioned that the Q3 figure is surrounded by greater uncertainty than is normally the case with the flash estimate, owing to the lack of administrative data for the month of September in particular. 

Meanwhile, incoming data for the manufacturing industry remain depressed. E.g., capacity utilisation in the sector continued to decline in the final quarter of the year, while a further increasing share of industrial companies have reported insufficient demand (figure BE2). In our scenario, we believe that the deepening malaise in manufacturing will start weighing on real GDP growth, with quarterly growth slowing to only 0.05% in Q4 2023. Moreover, we think that Q3 growth will eventually be revised to 0.30%, down from the 0.50% preliminary estimate. Despite this, annual growth for 2023 is now seen at 1.3%, instead of 0.9% in our previous month’s outlook. The reason are the revisions of past data by the NAI, which led to a larger carry-over effect from 2022 into 2023 (i.e., 0.5 instead of 0.3 percentage point) and higher than previously expected growth in the first half of the year. For 2024, we still see a gradual recovery but at a somewhat slower pace than assumed previously, in line with the adjustment we made in the euro area scenario (see above). As a result, the outlook for annual GDP growth in 2024 has been revised downward marginally, from 0.9% to 0.8%. 

Sticky core inflation

HICP based inflation in Belgium was down sharply again in October and went well into negative territory. At -1.7%, the rate was by far the lowest in the euro area and below what we had expected (-1.1%). The rapid decline in headline inflation in the past months hides the fact that underlying price pressures in Belgium remain uncomfortably high. While Belgium’s general inflation dropped well below the euro area figure (2.9%), core inflation (5.6%, i.e. excluding energy and food) stayed above the euro area level (4.2%) and its long-term average of about 1.5%. Going forward, energy inflation is projected to no longer drive headline inflation lower, largely due to the technical impact of the unwinding of energy support measures. Given stronger than previously expected falls in headline inflation at 2023 year-end, we now see average annual inflation in 2023 at 2.3%, down from 2.6% in our previous forecast. In contrast, we increased the average inflation estimate for 2024, given assumed stickiness of underlying core inflation. At 3.6%, our 2024 forecast, however, remains below the recently updated inflation outlook by the IMF (4.3%) and EC (4.2%), in line with our also relatively downbeat forecast for euro area inflation (see above).