Economic projections for Belgium – Autumn 2014

This article presents the Bank’s new macroeconomic projections for 2014-2016. They have been produced for the first time on the basis of the national accounts ESA 2010. They already take account of the measures adopted by the new federal government and the federated entities in accordance with the provisions applicable to Eurosystem projection exercises. Among those measures, the temporary suspension of the mechanisms for the indexation of wages and replacement incomes will have a major influence on future macroeconomic developments and the effects of that measure have thus received special attention in the article. Despite a mixed picture in the first half of the year, the global economy is currently maintaining a modest recovery which should strengthen in the years ahead. According to the Eurosystem projections, real GDP growth in the euro area will come to 0.8 % in 2014, strengthening to 1.5 % in 2016. As to Belgium, the expansion of activity is likely to remain moderate in 2014 (1 %) and in 2015 (0.9 %), gathering pace to 1.4 % in 2016. The stronger growth that year will be due mainly to net exports, which will gain momentum as the improvement in cost competitiveness, driven by the measures aimed at reducing labour costs, is gradually reflected in the export performance of Belgian firms. In 2014, net job creations should amount to almost 18 000, but will be confined mainly to the nonmarket service branches and self-employed activity. A cumulative total of around 45 000 extra jobs should be created in 2015 and 2016, as a result of stronger growth and the reduction in labour costs. Taking account of the expected movement in the labour force, the unemployment rate would decline slightly from 2016 onwards only. Inflation, which has fallen steeply in Belgium in recent months is expected to dip to 0.6 % in 2014, a very low level attributable partly to the cut in VA T on electricity, and in line with widespread disinflation in the euro area. In 2015 and 2016 the package of measures aimed at reducing labour costs should compress core inflation, but headline inflation is likely to rise slightly, reaching 1.2 % in 2016 as a result of higher energy and food prices. The public deficit is expected to fall significantly over the projection horizon, declining from 3.2 % of GDP in 2014 to 2.1 % in 2016. The public debt is forecast to stabilise at around 107 % of GDP.