Perspectives

More robust than expected, but new coalition has tough choices to make

Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)  
economic-research.bnpparibas.com  
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BELGIUM  
MORE ROBUST THAN EXPECTED, BUT NEW COALITION HAS TOUGH CHOICES TO MAKE  
We expect the Belgian economy to lose 7.5% of its size this year and grow by 4.6% next year. Consumption is on course for  
a strong recovery but corporates remain hesitant to invest, with government interventions expected to pick up some of  
the slack. Belgium has a new government after 16-month deadlock. The new coalition will have its work cut-out for it, as  
both supportive measures in the short term and a deficit-reduction program in the medium term are needed.  
The impact of the Coronavirus was already felt in the GDP numbers for  
the first quarter of this year, which came in at 3.4% below Q4 2019. As  
the bulk of the lockdown measures only kicked in at the end of March,  
GROWTH AND INFLATION (%)  
the hit to the 2nd quarter proved to be even more substantial, at 12.1%.  
The industry and construction sectors shrank by about 13%, services  
activity was 11.5% lower than in the first quarter.  
A partial recovery in the remainder of the year will be led by consumer  
spending and supported by government measures. Investment will  
take longer to rebound, as we only see it reaching its 2019 levels well  
into 2022. For the whole economy, on a quarterly basis GDP should  
have recovered the level of the last quarter of 2019 by the end of 2022.  
GDP Growth  
Forecast  
Inflation  
1.3  
Forecast  
6
4
2
0
2
4
6
8
4.6  
2.3  
1.5  
1.4  
1.5  
0.7  
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-
-
-
CONSUMER CONFIDENCE STARTED RECOVERING  
-
7.5  
A survey by the Belgian National Bank (NBB) indicated three distinct  
factors holding back private consumption at the beginning of the  
summer: shops being closed, shopping being less enjoyable than before  
and fear of catching the infection. The first factor was more or less  
eliminated through the subsequent easing of the lockdown directives,  
but the impact of social distancing measures is likely to stick around  
longer on the shopping experience, at least until a vaccine becomes  
widely available. This goes as well for the fear of the virus which feeds  
directly into the confidence channel.  
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10  
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
CHART 1  
SOURCE: BNP PARIBAS GLOBAL MARKETS  
the total number of registrations has declined each month, reaching  
about 300 000 in July. Interestingly, a survey by the NBB revealed that,  
in April, corporations expected 20% of the employees on temporary  
unemployment to be made redundant.  
Consumer confidence started recovering through June and July but the  
subsequent partial lockdown of certain provinces seems to have taken  
its toll as in August it dropped back to its May-level which was the  
lowest since 1993. Saving rates likely rose due to forced saving during  
the lockdown. The drop in consumer confidence risks to ‘block’ part of  
these savings in the coming quarters, which could weigh on consumer  
spending though overall purchasing power is expected to actually hold  
up for the next couple of years. An additional boon during the past  
months was the “staycation”-effect: the decimation of international  
tourism eliminated most spending by foreign visitors in Belgium but  
encouraged additional consumption by residents unable to go abroad.  
This had a positive outcome on Belgian economy as a whole.  
With total unemployment up by 30,000 since the beginning of the year,  
this expectation has failed to materialise so far. In fact, the current  
increased unemployment rate is back at the level it stood at the begin-  
ning of 2019, which at the time was considered to be well below the  
non-accelerating inflation rate of unemployment (NAIRU).  
Looking forward, we expect temporary unemployment levels to revert  
to their long-term average value of around 100,000 by the beginning  
of next year summer. From the 200 000 decrease in temporary unem-  
ployment, we think about 50% will lose their job. At that point, regular  
unemployment levels would peak, with about 130,000 more unem-  
ployed men and women than at the beginning of this year.  
GOVERNMENT REVENUES ARE LIKELY TO DECLINE  
THE IMPACT FOR CORPORATES DIFFERS  
The government measures, needed to prop up the economy, will in-  
crease the budget deficit significantly. Already more than EUR 16 billion  
additional spending was announced, as Belgium requested assistance  
from the European SURE-fund to help foot the cost of labour-suppor-  
ting measures. Furthermore, government revenues are likely to decline  
by around EUR 15 billion. All things considered, we expect an increase  
in the primary deficit by at least EUR 40 billion, with the headline defi-  
cit coming in at -11.7% for 2020.  
For corporates, the impact of Covid-19 differs by sector. According to  
an NBB-survey, at the end of August, 8% of all corporates considered  
bankruptcy likely in the next coming months across the economy. This  
number increases to one-third for sectors like accommodation and  
food service activities, events and recreation and road transport (per-  
sons). In the same survey, the total number of respondents who believe  
themselves unable to remain operational beyond the next 3 months  
has declined from about 40% in March to 20% in August.  
The governor of the NBB recently expressed his opinion that this deficit  
might decline to 6% by 2023, but that would require the installation of  
a clear budget-plan. For the new government just formed almost 500  
days after the last election, the stakes are high. It’s first priority will be  
to support the recovery in the near term but eventually less popular  
decisions will have to be made.  
Corporate investment, which represents about 70% of all Gross Fixed  
Capital Formation, could end up 20% lower than its 2019-level on a full  
year basis. Low capacity utilisation rates, uncertainty and pressure on  
profit margins are the main culprits here.  
REGULAR UNEMPLOYMENT LEVELS WOULD PEAK  
The number of employees registered in the “temporary unemploy-  
ment”-scheme peaked in April with 1.2 million applicants. Since then,  
The bank  
for a changing  
world  
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