Belgium - Economic update March 2019

Belgian real GDP growth in the final quarter of 2018 was confirmed at 0.3%, implying stable quarter-on-quarter growth in all four quarters of 2018. Growth in the euro area, on the contrary, slowed down throughout the year. In the first half of 2018, Belgian growth was still lower than in the eurozone, but in the second half it was no longer the case. For 2018 as a whole, Belgian real GDP growth was 1.4%.

The breakdown by GDP components showed a number of striking developments. Q4’s growth was supported mainly by growth in gross fixed capital formation. Corporate investment in particular grew substantially (+3.3% qoq non-annualised), a notable contrast to its change in previous quarters (see figure B1). Investment figures were once again influenced by a few specific transactions, however, relating to sales and purchases of ships to and from foreign countries. They had an overall positive net effect on total corporate investment of 0.6 of a percentage point. Housing investment by households also contributed positively to Q4 growth. By contrast, household consumption expenditure shrank for the second quarter in a row. Imports grew quicker than exports, causing a negative growth contribution from net exports of goods and services.

Figure BE1 – Investments contributing most to Belgium’s Q4 GDP growth (growth contributions, quarter-on-quarter change, in % points)

Source: KBC Economics based on NBB.Stat

Mixed signals

We expect household spending growth to pick back up in line with income growth over the next couple of quarters. Strengthening wage growth, falling inflation, continued (if slowing) job gains and personal income tax cuts should all contribute to this. In the meanwhile, Eurostat’s indicators for Belgium (and some other EMU countries) gave first hopeful signs of sentiment bottoming out (see figure B2). This contrasts to Belgium’s national confidence indicators, which were still pointing down in February, albeit only slightly. On the positive side, building-related confidence indicators remained relatively strong that month.

The (smoothed) dynamics of Belgian industrial production also showed a minor revival towards year-end 2018. This is striking, as industrial production in Germany remained in the doldrums. The reason for the reversal was a markedly rebound in consumer goods production. This is striking as well, as it is at odds with negative growth of private consumption and slower export growth in the last quarter of 2018.

Summing up, we get some mixed signals for the Belgian economy recently. At least, we can say that the situation has not substantially been worsening further. Therefore, we stick to our real GDP growth forecast for 2019 (i.e. 1.2%) and 2020 (1.1%), the more so given that our outlook is already at the lower bound of forecasts. The consensus growth forecast, for instance, currently is at 1.3% for both 2019 and 2020. We now forecast inflation to moderate to 1.7% in 2019 and 1.6% in 2020, slightly lower than our previous forecast. Whereas risks to our GDP growth scenario are to the downside and related to the external environment (in particular Brexit and escalating trade protectionism), the inflation risks are to the upside and on the domestic front (i.e. production constraints resulting from a tight labour market and energy supply limitations).

Figure BE2 – Eurostat’s sentiment indicators for Belgium reviving slightly

Source: KBC Economics based on Eurostat

Forecasts

More on the Belgian economy

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