Economic update - May 2021

The Belgian economy had a relatively good start to the year. According to the flash estimate by the National Accounts Institute, real GDP posted 0.6% growth in the first quarter of 2021 relative to the final quarter of 2020. The growth figure was somewhat stronger than we had expected (+0.3%) but still in line with our general base scenario of a gradual recovery of the economy following the progressive vaccination rollout. Also, Belgian Q1 growth was substantially better than that recorded in the total euro area, which surprised on the downside with activity contracting by 0.6%. It was also higher than growth in the three main neighbouring countries (Germany -1.7%, France +0.4% and the Netherlands -0.1%). The Q1 figure still leaves Belgian economic activity 4.3% below its pre-Covid-19 peak, compared to 5.5% for the euro area.

Information on a detailed breakdown of the Belgian Q1 growth is not yet available. The relatively good result is likely (partly) due to the government’s responses to the latest Covid-19 wave, which were in recent months less strict than in most other euro area countries. As a consequence, private consumption in Belgium likely suffered less from the extended lockdown, which is also suggested by the EC’s consumer confidence indicator (figure BE1). Moreover, the reversal in Q1 of the temporary Brexit stockpiling effect, that had pushed up Belgian exports to the UK in Q4 2020, might have been offset by stronger exports to other countries. Value added in Q1 was strongly up in industry (+1.3%), indeed suggesting that net exports dragged off somewhat less of Q1 GDP growth than we had expected, or even contributed positively to growth.    

Reopening optimism

Falling infection rates indicate that the third wave of the pandemic has passed its peak. The vaccination process moreover has continued to accelerate significantly, with Belgium now being in the leading group of European countries with the highest number of first doses per number of inhabitants. This is promising for the economy as it means that containment measures can be lifted gradually as we move forward into the summer months. Sentiment indicators published by the NBB are reflecting such a reopening optimism (figure BE2). In particular, the business barometer picked up at a clearly faster pace in recent months and is now well above its pre-covid-19 level. After having improved in the two previous months, consumer confidence recorded a slight dip in April. However, the survey was carried out from 1 to 17 April, so to a large extent before the 14 April announcement of relaxing some of the coronavirus-fighting measures after the Easter pause. 

All this points to a further rebound in economic activity in Q2. More generally, in our scenario we left the quarterly growth path of real GDP unchanged compared to the forecast made in the previous month. This means we see qoq growth in Q2 at 0.8%, accelerating further to 1.5% in Q3 and 1.0% in Q4. By (late) summer, most of the hardest-hit sectors should be able to resume their normal operations, giving the economy an additional boost. Given stronger-than-expected growth in the first quarter, we raised our GDP growth forecast for the full year 2021 to 4.5%, from 4.0% previously. The annual growth forecast for 2022 stays at 4.1%. These figures imply that the Belgian economy returns to its pre-crisis level by Q1 2022.

The further rise in HICP headline inflation in April to 2.0%, from 1.6% in March and 0.3% in February, is mainly a reflection of the volatility of energy prices as they continue to be the main driver of Belgian inflation. Looking ahead, we see Belgian inflation figures heading even somewhat higher over the course of the coming months and, as in 2020, being unusually volatile. This is largely due to temporary factors including, besides energy prices, base effects from the postponement of sales last summer and a potential mismatch between demand and supply as covid-19 lockdown measures are eased. On average for 2021, we continue to expect an inflation rate of 1.8%, up from 0.4% in 2020.

Belgian Economic Forecasts

National accounts (real yearly change, in %)

              2020 2021 2022
Private consumption -8.7 3.4 5.2
Public consumption 0.6 3.2 2.4
Investment in fixed capital -6.9 7.4 3.2
Corporate investment -7.8 6.8 4.8
Public investment -1.4 1.0 2.4
Residential building investment -6.9 5.7 2.4
Final domestic demand (excl. changes in inventories) -6.1 4.3 4.0
Change in inventories (contribution to growth) 0.1 0.0 0.0
Exports of goods and services -4.6 12.1 10.0
Imports of goods and services -4.3 11.4 10.2
Gross domestic product (GDP) -6.3 4.5 4.1
Household disposable income 0.5 0.7 1.7
Household savings rate (% of disposable income) 20.9 18.4 15.4

Equilibrium indicators 

              2020 2021 2022
Inflation (average yearly change, in %)      
Consumer prices (harmonised CPI) 0.4 1.8 1.5
Health index (national CPI) 1.0 1.2 1.7
Labour market      
Domestic employment (yearly change, in '000, year end) -13.0 -50.0 95.0
Unemployment rate (in % of labour force, end of year, Eurostat definition) 5.7 7.0 6.7
Public finances (in % of GDP, on unchanged policy)      
Overall balance -9.4 -7.0 -6.4
Public debt 114.1 116.4 117.0
Current account balance (in % of GDP) -0.2 0.4 -1.0
House prices (average yearly change in %, existing and new dwellings, Eurostat definition) 4.2 1.0 1.5

Other forecasts and economic updates



Central and Eastern Europe

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