Perspectives

Light at the end of the tunnel but beware of the challenges ahead

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Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
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BELGIUM  
LIGHT AT THE END OF THE TUNNEL BUT BEWARE OF THE CHALLENGES AHEAD  
The Belgian economy shrunk by 6.3% in 2020. This amounts to the biggest post-war decline on record. A bet-  
ter-than-expected fourth quarter pushed the final numbers up somewhat and will have a positive effect on the yearly  
growth rate for the whole of 2021, which we see at 3.7%. Consumption suffered during the second lockdown at year’s  
end and is expected to dip again in April, as the government reinstated shopping on appointment only and instructed  
schools to extend the Easter holiday break. Unemployment increased significantly but less than was feared and the  
long-anticipated wave of bankruptcies hasn’t quite materialised so far. Tough choices lie ahead for the multi-party  
government, which should also focus on reining in its budget deficit in the years to come.  
OVERVIEW  
GROWTH AND INFLATION (%)  
Household consumption, which posted a 12% QoQ decline in the 2nd  
quarter rebounded only partially in the 2nd half of 2020. Total capital  
spending held up surprisingly well in 2020, after dropping by more  
GDP Growth  
Forecast  
Inflation  
Forecast  
nd  
rd  
th  
than 20% in the 2 quarter. A strong recovery in the 3 and 4 quarters  
however resulted in a total spending a lot closer to pre-Covid levels  
at year’s end (-2%). Government spending declined as non-urgent  
medical procedures were postponed when the second lockdown kicked  
in (it had also been the case during the first lockdown).  
An increase in hospital admissions induced the federal government to  
announce a third lockdown at the end of last month. With schools  
closed for at least three weeks and non-essential stores working with  
appointments only, the impact on the virus’ metrics remains to be seen.  
3.7  
3.7  
4
2
0
2
4
6
1.7  
1.8  
1.3  
1.3  
0.4  
-
-
-
st  
Just weeks before, the government had put forward the 1 of May as  
the date on which restaurants and bars could reopen. Whether or not  
it will be able to follow through on that is hard to say at the moment.  
-
6.3  
-8  
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
CHART 1  
SOURCE: NATIONAL ACCOUNTS, BNP PARIBAS FORTIS  
OUTLOOK  
For 2021, we expect a partial GDP recovery, the Q4 2019 level being  
only reached in the second half of 2022. The underlying expenditure  
components will display some divergence over the short-term. At the  
start of this year, consumer spending is still about 5% below its pre-  
Covid level but we expect it to complete a full recovery by the end of  
mere 100,000. This number came down rapidly to around 250,000  
over the summer. Despite fears of an upsurge, the second lockdown  
at the end of 2020 saw only a relatively small increase in temporary  
unemployment, with less than 300,000 workers listed as temporary  
unemployed in December 2020.  
2
021.  
Once the current regime and the various measures supporting the  
self-employed expire, actual unemployment is expected to increase  
significantly. This increase would originate from three distinct  
channels: workers moving from temporary to full time unemployment,  
self-employed workers closing their business and firms with more than  
Business investment would still be 11% lower in 2022 compared to  
where it would have been without the pandemic, according to survey  
data. We expect household and government investment to pick up  
some of the slack by then, with a recovery to Q4 2019-levels for total  
investment expected by mid-2022.  
1
0 employees going bankrupt. Each of these channels could contribute  
The speed of the recovery will of course be highly dependent on any to adding another 100 000 unemployed workers at the end of 2021.  
developments in the health crisis. The pace of vaccination is in line Later on, we expect to see a gradual improvement in the situation, with  
with that of the neighbouring countries, but well below rates reported unemployment declining from a peak of 7.7% back to below 7% by the  
in the United States and Israel. Despite the near-term uncertainty, end of 2022.  
most scenarios include at least partial relaxation of the most stringent  
Work organisation has evolved markedly compared to the pre-Covid  
social distancing measures towards the end of the year. Risks remain  
situation. In March, one out of three employees was reported to be  
skewed towards the downside however.  
working from home at least partially. Despite half of the participants  
to the ERMG-surveys reporting some negative productivity impact at  
LABOUR MARKET  
minima, firms expect regular telework to become a permanent feature  
once the health-crisis is over. Across the whole economy, physical  
office space per employee is expected to decline by almost 10% over  
the next five years. This will undoubtedly have repercussions on the  
office market.  
The Belgian unemployment rate came in at 5.8% at the end of 2020, up  
from 5.1% at the start of the year. Early in the health crisis, the Belgian  
government installed various measures to support the labour market.  
For example, the temporary unemployment regime was made more  
generous and easier to access for employees. In April 2020, 1.2 million  
workers made use of this facility, up from a historical average of a  
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Eco Perspectives // 2 Quarter 2021  
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REAL ESTATE  
Housing prices nonetheless continued their upward trajectory despite  
a background of price-limiting measures (the Flemish government  
scaled down its tax-advantageous treatment of mortgage payments  
[
Woonbonus”] in 2019) and a modest disposable income growth. Ultra-  
low interest rates however mostly buffered the impact. The National  
Bank of Belgium’s valuation model points towards an overvaluation of  
1
3.5% compared to underlying fundamentals at the end of 2020.  
Real estate transactions were frozen during the most stringent phase  
of the first lockdown in April 2020, but activity levels recovered swiftly  
in the remainder of the year. The growth in outstanding mortgage  
loans persisted, despite more stringent loan-to-value requirements  
established by the National Bank of Belgium. Aggregated household  
debt came in at 66% of GDP in 2020, somewhat higher than the  
Eurozone average (62%).  
PUBLIC FINANCE  
Government revenues remained stable as a proportion of the economy  
but took a EUR 12 bn hit in nominal terms as the economy shrunk by  
6
.3%. Non-interest expenditures had been close to 50% of GDP for the  
last couple of years. Increased spending at various government levels  
brought this number closer to 60% for the whole of 2020. All in all,  
the NBB estimates that fiscal stimulus amounted to EUR 36 bn or 8%  
of GDP. About two thirds of this were discretionary spending, with the  
remainder consisting of automatic stabilisers, in operation during dire  
economic times.  
Notable measures include the extension of the temporary  
unemployment regime (EUR 4 bn), bridging rights for self-employed  
persons (EUR 3 bn) and premiums in case of forced closure or sharp  
drop in sales (EUR 3 bn), next to additional support for the health  
sector (EUR 6 bn).  
Theexceptionallow-ratesenvironmentallowedtheBelgiangovernment  
to further push down average interest rates on the outstanding debt.  
So even as the debt-to-gdp ratio shot up to 116%, yearly interest  
charges continued their downward trajectory from 2.0% of GDP in 2019  
to 1.8% of GDP last year. The average rates on the outstanding debt are  
expected to decline further from about 1.7% currently to 1.3% by 2022.  
Despite this positive evolution, debt-sustainability remains worrisome  
in the long run. With the government’s focus slowly shifting from  
fire-fighting mode to kickstarting the economy again, a big challenge  
awaits federal Prime Minister De Croo. His broad coalition will need to  
get on the same page about future steps.  
Completed on 31 March 2021  
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