Belgian economic update November

According to the preliminary estimate of the National Accounts Institute, Belgian real GDP rose by 0.4% in the third quarter compared with the previous quarter. This is slightly more than expected and also a slight acceleration compared to the 0.3% growth in the first and second quarters. Growth in the second quarter was revised downwards, however, from 0.4% in the previous estimate. Belgian GDP growth in the third quarter also positively surprised relative to that of the euro area (0.2%). It was the first time since Q2 2016 that Belgian growth outpaced euro area growth to a significant extent (figure BE1).

Figure BE1 – Belgian real GDP growth in Q3 above the euro area figure (real GDP, % change qoq)

Source: KBC Economic Research based on NBB, Eurostat (2018)

Although the third quarter growth may surprise somewhat positively, it remains rather low. Even if the Belgian economy continues to grow by 0.4% in the final quarter, real GDP growth for 2018 as a whole will only be 1.5%. This is a slowdown compared to the 1.7% growth in 2017. In the KBC scenario, we expect Belgian growth to fall further to 1.4% in 2019. This figure is a bit lower than the 1.5% growth forecast recently published by the European Commission. The expected pace of expansion in 2019 is still roughly in line with potential, which is estimated by the European Commission at 1.4%.

Contradicting confidence indicators

Confidence of Belgian consumers has been reviving in recent months, indicating that domestic spending is keeping up GDP growth for the moment. In contrast, the NBB business barometer dropped back in October, wiping out the improvements in the previous two months. This time, the deterioration was exclusively due to a sharp fall back of the indicator in Wallonia, after an equally sharp upswing in the previous month. The Walloon figure again declined below the Flemish one. Looking at the sub-indicators, the assessment of export orders in Belgian manufacturing once again deteriorated, fully in line with the sharp drop in the German Ifo-indicator.

In last month’s publication, we referred to Eurostat’s revision for Belgium’s harmonized unemployment rate, pointing at an upswing of the rate from 6.1% at the start of the year to 6.6% in July. In August the number fell to 6.5%. The latest figure, for September, again declined to 6.3%. This illustrates that the data are quite volatile, often without a clear explanation for it. On the labour market, the dynamic of temporary employment has been trending down substantially in recent months. At first sight, this looks worrisome, as interim labour traditionally pictures a close relationship with real GDP growth (figure BE2). However, the downward trend in temporary employment can also signal that more employees are getting a fixed contract, forced by the labour market getting tighter.

Figure BE2 – Growth of economic activity vs. temporary employment (% change yoy)

Source: KBC Economic Research based on NBB, Federgon (2018)

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