Belgian economic growth to amount to 1.2% in 2016 (11/02/2016)

Slightly higher economic growth in the euro area

Global economic growth slowed in 2015 as the Chinese economy cooled down and as the strong decline in commodity prices exerted a negative influence on other emerging economies such as Russia and Brazil. While global growth is expected to barely increase in 2016, advanced economies’ economic growth should gain momentum for the third year in a row. The US economy should grow at about the same pace as last year (2.4%), while GDP growth in the euro area is expected to grow by 1.7% (against 1.5% in 2015). Economic activity in the euro area is supported by the decline in energy prices and an accommodative monetary policy that induces low interest rates and a depreciation of the euro.

The main risks surrounding this international scenario consist of a hard landing by the Chinese economy, the impact of the gradual normalisation of US monetary policy (which might lead to an additional flight of capital from emerging economies) and the evolution of commodity prices, in particular of crude oil.

Belgian economic growth remains relatively stable

Belgian economic growth proved to be just a touch higher in 2015 (1.4%) than in 2014 owing to dynamic private consumption. While export growth is expected to strengthen in 2016, slower private and government consumption growth should limit GDP growth to 1.2%.

Although growth in foreign export markets should barely increase in 2016, the beneficial evolution of domestic costs - a direct consequence of measures aimed at limiting labour costs - and the euro’s depreciation  should nevertheless result in an acceleration of export growth from 3.5% in 2015 to 4.1% in 2016. Net exports are expected to support economic growth this year. Along with lower oil prices, this should lead to a larger surplus in the current account of the balance of payments.

Just as was the case last year, real disposable household income has been backed by the increase in employment but limited by the policy of wage moderation. In spite of the index jump, real disposable income still increased by 0.9% in 2015 owing to weak inflation (mainly because of lower energy prices). This year, the rise in purchasing power should amount to 0.8%. While a number of policy measures are beneficial for purchasing power, this is partly offset by, among other factors, the increase in the VAT rate on electricity for domestic use and the increase in other indirect taxes. The saving rate of households is at a historically low level, but should mark a further slight decline because of the improved situation in the labour market. Private consumption growth should nevertheless be less pronounced (0.9% in volume terms) than in 2015 (1.3%).

The increase in purchasing power and the low level of mortgage rates should allow a moderate recovery in households’ residential investment (0.8%) following a stagnation in 2015. Business investment should decline by 1% this year, but this growth figure is heavily influenced by the purchase of a patent in 2015 (which has no effect on GDP as it was imported). Excluding this transaction, business investment should rise by 2.8% this year, supported by the increase in corporate profitability and the high level of the industrial capacity utilisation rate.

Government consumption growth (in volume) should amount to merely 0.1% this year. Government investments rose strongly in 2015 (7.8%), to a large extent attributable to school building. In 2016, overall government investment growth should amount to 2.5%.

Job creation supported by the decline in labour costs

Last year, economic growth resulted in an increase in employment of approximately 0.8% (a net increase of 36 800 jobs). This year, employment is positively influenced by additional measures aimed at limiting labour costs. Compared to the September forecasts, the downward revision of value added volume growth in the market sector in 2016 (from 1.4% to 1.1%) is almost completely compensated for by the increase in labour intensity, as a result of which the employment forecasts for this segment (wage earners and self-employed) barely deteriorate. Government employment, however, is expected to decrease for the second consecutive year. Overall, employment should increase by 0.7% in 2016 (a net increase of 30 000 jobs).

Against the background of a further increase in the labour force, the number of unemployed persons (broad administrative definition) should decrease by a total of 34 000 persons in 2015 and 2016. The harmonised Eurostat unemployment rate should fall from 8.3% in 2015 to 7.9% 2016.

Inflation picks up in 2016

Belgian inflation, as measured by the national index of consumer prices, should rise to 1.4% this year (against 0.6% in 2015). In both years, the decline in oil prices leads to overall inflation being lower than inflation excluding energy products. The higher inflation rate in 2016 is to a large extent attributable to the increase in excise duties on alcoholic beverages and diesel, and measures that have increased the electricity bill (such as the VAT rate increase to 21% and the abolition of the free kWh for Flemish households).

The health index, which is not affected by the evolution of petrol and diesel prices, should rise by 1% in 2015 and by 1.6% in 2016. The next crossing of the pivotal index (101.02) by the smoothed health index should occur in July 2016.