Perspectives

Structural impact limited so far, but eventually bill comes due

st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
1
9
BELGIUM  
STRUCTURAL IMPACT LIMITED SO FAR, BUT EVENTUALLY BILL COMES DUE  
We expect the Belgian economy to lose 7.2% of its size this year, followed by a 3.8% increase next year. After a strong  
recovery in the third quarter, private consumption is expected to decline again at the end of this year, but not as much  
as during the first lockdown. So far, structural damages seem to have been mainly avoided, with bankruptcies close  
to their normal level and unemployment rates stable since the beginning of the year. Government support measures  
have no doubt played a crucial role in this but once these measures are discontinued, some long term scarring will  
take place.  
At the end of the first half of this year, Belgian quarterly real GDP  
was 15% below the level of the last quarter of 2019. Upward revisions  
of the national accounts, for both the first and the second quarters,  
fuelled a more optimistic outlook. This was seemingly reinforced by a  
higher-than-expected growth rate for the third quarter, coming in at  
GROWTH AND INFLATION (%)  
GDP Growth  
Inflation  
Forecast  
Forecast  
1
1.4% quarter-on-quarter.  
3.8  
3.8  
3
.5  
.5  
The uptick in new cases at the beginning of the fourth quarter and  
the subsequent increase in countermeasures however paint a less rosy  
picture. We expect lower economic activity in the last quarter of this  
year and it remains to be seen if a technical recession can be avoided  
at the start of 2021.  
1
.7  
1.7  
1
.3  
1.4  
1
0.5  
-
0.5  
-2.5  
-
-
4.5  
6.5  
LABOUR MARKET  
The unemployment rate has remained stable (around 5%) since the  
beginning of the year, which is quite remarkable. In fact, during the  
same period the EU-average unemployment rate increased by close to  
-
7.2  
-8.5  
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
1
percentage point and a similar trend was observed in the neighbou-  
SOURCE: NATIONAL ACCOUNTS, BNP PARIBAS FORTIS  
ring countries. The expanded “temporary unemployment”-scheme no  
doubt played a major part in the standout performance of the Belgian  
labour market. In April, when government measures to fight the pan-  
demic were at their most stringent, close to 1.2 million people bene-  
fitted from this scheme. For September, that number had fallen below  
CHART 1  
The hardest hit areas are reported in client-facing sectors such as  
Events, Accomodation & Food Services and the Non-Food Retail sector.  
Aggregated real-time data on retail spending confirms this picture,  
with expenditures in the first two weeks of November some 20% below  
their normal levels. After private consumption almost posted a full  
recovery to pre-crisis levels in the third quarter, a significant decline is  
in the cards for the last months of this year.  
Still, the impact of this second lockdown is likely to be softer, as  
businesses now seem better equipped to deal with more stringent  
measures. In November, full time telework was quickly reinstated for  
more than 30% of all employees. This closely resembles the situation  
in the first lockdown and is well in excess of the 9% reported for  
September.  
Across the board, firms are fearing a strong increase in bankruptcy risk.  
Surveys show that close to 10% could be out of business by the second  
half of next year. The main reasons for liquidity problems are thought  
to be revenue losses and late payments, with insufficient credit lines  
so far less of an issue.  
The impact on investment plans is significant. For the entire economy,  
firms intent to cut back on their pre-covid investment plans by more  
than 20%, for both this year and 2021. In the second quarter of this  
year this trend was already traceable in the national accounts, with  
corporate investment 23% below the level it had reached at the end  
of 2019. We do not expect investments to reach this level again before  
the end of 2022.  
2
00.000, still almost twice as high as the normal level.  
During the second lockdown, which was imposed at the beginning of  
November, this number is expected to go up again, with more than  
half of all companies looking to increase the number of workers they  
enlist for the scheme. We expect to see around half a million workers  
registered for temporary unemployment by the end of this year. From  
the 2nd quarter of 2021 onwards this number should slowly drop again.  
At that point, the actual unemployment rate will be creeping upwards  
as government support measures are expected to come to an end. All  
in all, we expect to see the unemployment rate peak well above 7%  
by the start of 2022. Even though an estimated number of 140.000  
people losing their job will cause significant economic hardship, the  
unemployment rate will be at a similar level than that of 2017.  
At that point, halfway through the Michel-I government’s legislation  
period, close to 160 000 jobs had been created since the end of 2014.  
Just as many were added in the 2 following years. An equally fast pace  
of job-creation might be hard to repeat, but the unique stop-start-  
character of the current crisis could support a quick rebound.  
CORPORATES  
In its monthly survey, the National Bank of Belgium (NBB) has been  
tracking the negative impact of the health crisis on firms’ turnover  
levels. Turnover losses peaked above 30% for the economy as a whole  
in the month of April, but this gradually improved to less than 15% in  
August. For November, companies expect another deterioration as the  
nd  
2
lockdown kicks in.  
The bank  
for a changing  
world  
st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
2
0
PUBLIC FINANCE  
The freshly minted De Croo-government announced new outlays to  
the tune of 1% of GDP but the revenue-side of the equation remains  
somewhat murky. A large slice of the newly budgeted government  
income is expected to arise from increased efforts to fight social fraud,  
which does not look all that realistic.  
For this year, we expect revenues to decline by close to EUR 14 bn  
in line with the reduction in GDP. General expenditures will be close  
to last year’s level, with an additional EUR 16 bn in Covid-related  
spending taking place at various government levels. All in all, we see  
the deficit for this year ending up at 8.7% of GDP. Today there is no real  
indication that the deficit would fall below 5% of GDP before the end of  
the government’s ruling period in 2024.  
This of course adversely impacts the government debt level, which we  
put this year at 114% of GDP. A recent study by the NBB suggests a “safe  
upper boundary” of 120% of GDP for Belgian government’s debt. This  
boundary is higher than that of countries like France, Italy and Spain  
because historically, Belgian governments have shown a willingness  
to implement fiscal policy consolidation in the face of an increasing  
debt level.  
It remains to be seen whether the current centre-left government, led  
by a centre-right politician, will choose a similar path after the health-  
crisis has been brought under control.  
Completed on 7 December 2020  
The bank  
for a changing  
world  
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