Domestic demand under pressure to keep delivering

EcoPerspectives // 4 quarter 2019  
Domestic demand under pressure to keep delivering  
Belgian GDP growth is expected to come down from last years 1.4% to a mere 1% in 2019 and 0.7% in 2020. This reflects a further  
slowdown in international trade, which is only partially offset by resilient domestic demand. Despite a slowdown in job creation, a  
pickup in disposable income spurs on private consumption well into 2020. Public finance remains a key risk-factor with government  
debt in excess of 100% of GDP. Further fiscal slippage seems almost inevitable with government formation talks not yet near a  
Business confidence in September stabilised below its long-term  
- Growth and inflation  
average level, confirming the downward trend since the start of the  
second quarter of this year. The Belgian industrial production index  
however posted a very strong increase right before the summer  
months, while the eurozone on average showed a decline for this  
measure over the same period. Clearly some caution should be  
exerted in interpreting the seemingly encouraging results of these  
surveys. Especially given the decline in industrial added value,  
which is estimated based on actual turnover-data.  
GDP Growth (%)  
Inflation (%)  
Despite a strong showing in the 2nd quarter, investment growth is  
lagging behind what would be expected given its relationship with  
capacity utilisation rates. With the latter still above their long-term  
average, we suspect uncertainty with regards to geopolitical events  
Source: National Accounts, BNP Paribas  
Brexit, US-China trade war) is weighing on investment appetite.  
Labour market and prices  
eat into producers’ profits, rather than leading to higher prices.  
Since 2014, employment rose by 6% or almost 300,000 additional  
jobs. The unemployment rate is now well below 6%, with youth  
unemployment close to an all-time low of 13%. The employment  
rate of the population aged 20-64 remains perilously low. At 69.7%  
at the end of 2018 it is expected to fall short of its Euro2020  
objective of 73.2% by 2020. Getting this number up remains a key-  
challenge to ensure the future sustainability of the country’s social  
security system.  
Headline inflation would fall back from 2.3% in 2018 to 1.3% in 2019.  
Government policy  
The public deficit improved markedly since 2014, moving from  
-3.1% to -0.7% in 2018. This was caused to an equal degree by two  
elements: declining interest charges and primary expenses falling  
faster than revenues. With regards to the first element, the Belgian  
Debt Agency has been instrumental in actively locking in the current  
low interest rates for longer on the outstanding public debt. The  
average maturity for the public debt went up by 4 years between  
The vacancy rate, expressed as the number of vacancies compared  
to the total number of jobs in the service sector, has been above 4%  
since early 2017. This is well in excess of the eurozone average of  
007 and 2018, which is well in excess of the OECD-average of  
years. As a result, the interest charges will likely remain at or  
2.4%. Businesses struggling to fill job openings are symptomatic of  
below the current level of 2% of GDP for the foreseeable future.  
the skill-mismatch between labour-supply and -demand. In addition,  
regional differences abound with higher unemployment rates in the  
Walloon (southern) part of the country.  
The primary budget however is expected to deteriorate already this  
year, with the current minority government unable to push through  
unpopular measures to avoid further fiscal slippage. With  
government formation talks only just kicking off again, after the last  
regional formation talks were concluded last week, it’s highly  
unlikely that this situation will be further mitigated still this year. We  
expect the headline deficit to reach 2% again for this year.  
During the last months, job-creation seems to be slowing down. The  
Federgon-index for temporary employment declined for 4  
consecutive quarter. Previously, it had been on a five year non-stop  
upward trajectory from the 3 quarter of 2013 onwards. Regardless  
of these early indications, private consumption is still expected to  
grow over the next quarters, with negotiated wages and wage  
indexation pushing up disposable income.  
Such negative budgets will once again slow down the pace of debt-  
reduction. At 102% of GDP (2018) the public debt was well in  
excess of the Euro Area-average of 86%. This remains an important  
weakness of the Belgian economy.  
These factors will also contribute a further increase in hourly labour  
costs. The National Bank of Belgium (NBB) expects this increase to  
be only partially offset by productivity gains. The remainder would  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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