STU 04-99 : Special Topic - The dioxin crisis: an applied input-output analysis [ Short Term Update 04-99 - 22/11/1999]

Since our July forecasts, a number of new developments inside and outside Belgium have occurred. Taking those elements into account, a rapid and tentative updating of our forecasts for 1999-2000 has been made.

The first element concerns the good news stemming from the quarterly national accounts of a higher than expected GDP growth in the second quarter of 1999. As a result, over the first half of 1999, Belgian GDP growth reached 1.7% (yoy). The FPB GDP-leading indicator points to a further cyclical upturn in the second half of the year. It is also worth stressing that according to the information available today (in terms of value added, trade and unemployment), the impact of the dioxin crisis is still in line with the assumptions made in our July forecasts.

All in all, GDP growth in 1999 has been revised upward from 1.7% to 1.9%.

As prospects for the world economy are looking brighter now than four months ago and the 2000 Federal Budget is on an expansionary track, GDP growth in 2000 has been revised upward from 2.5% to 3.0%. Both developments are complementary - in the sense that the former primarily triggers exports, whereas the latter in the short-term mainly boosts private consumption- although the impact of the more favourable international environment on GDP growth is more important than the revision coming from the Budget 2000.

The acceleration of Belgian export markets in 2000 should indeed be stronger than previously expected due to higher import growth experienced by our European trading partners as well as in the rest of the world, resulting in stronger export growth than estimated earlier.

Compared to our July forecasts, the budgetary impulse for 2000 taken into account in these new forecasts is more than BEF 30 billion. At this stage, the simulation results in this field must be interpreted with caution. The most important effect of the measures should be seen in the area of private consumption, resulting from an increase in employment (reductions in social contributions) and accordingly in households’ real disposable income (reinforced by tax cuts and higher pensions).

At the outbreak of the dioxin crisis, the FPB was asked to evaluate the overall impact of the crisis on the economy and in particular the effect on the Belgian agriculture and food industry. The effects of the dioxin crisis on GDP and foreign trade were then measured, using an input-output analysis completed by a macroeconomic simulation. Given the numerous uncertainties prevailing at that time, the analysis had to be based on many hypotheses. The statistical data on production and foreign trade available today can now be used to verify these hypotheses and the forecasts for the months of June and July 1999.

The economic impact of the dioxin crisis: forecast

Last June, the Belgian agriculture and food industry was affected by a major crisis. The use of animal feed, possibly produced with contaminated fat, penetrated the whole food chain. Emergency measures taken by the Federal Government and imposed by the European Commission and the fall in foreign and domestic consumer confidence together created a situation commonly referred to as the “dioxin crisis”.

In order to evaluate the impact of the dioxin crisis on the Belgian economy, an input-output analysis was conducted allowing us to measure the effect of the changing behaviour of Belgian and foreign consumers on the foreign trade and value added of Belgian agricultural and food products.

The starting point of an input-output analysis is the final demand. The effect of final demand on production and value added is calculated by means of the tables of intermediate consumption. The tables describe those intermediate goods and services (both domestically produced and imported), which are used by the industries to realise their production. There are some facts that cannot be taken into account by using this model: the destruction of existing stocks, the effect of price changes on foreign trade, and the rise of other activities caused by the dioxin crisis (e.g. laboratory tests). The input-output analysis is completed by using a macro-sectoral econometric model, to estimate the subsequent effects caused by the change in incomes. [More in the full text document (PDF 3.0 file)]

STU 4-99 was finalised on November 9, 1999.