Belgian economy
On the way to a sustainable
but modest recovery
KBC Economic Autumn Seminar
5 September 2013
Johan Van Gom...
2
-25 -20 -15 -10 -5 0 5 10 15 20
Germany
Austria
Belgium
France
Euro Area
Netherlands
Finland
Spain
Italy
Portugal
Irelan...
3
-5
-4,5
-4
-3,5
-3
-2,5
-2
-1,5
-1
-0,5
0
1958 1975 1981 1993 2001 2009 2012
Real GDP decline (peak to trough, in %)
Cum...
4
93
94
95
96
97
98
99
100
101
102
103
104 Belgium
Germany
Netherlands
France
Euro-periphery (*)
Standstill in the Belgian...
5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
Belgium
Germany
Euro...
6
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Private consumption
Government consumption
Investments
Net exports
Stocks
Rea...
7
10
11
12
13
14
15
16
17
18
19
20
98
99
100
101
102
103
104
105
106
Real private consumption (Q4 2007 = 100)
Real disposa...
8
-30
-25
-20
-15
-10
-5
0
5
10
15
2010
11
12
13
14
15
16
17
18
19
20
21
22
Savings quote ( % disposable income, lhs)
Cons...
9
Belgium – Labour market performance
Unemployment on the rise again...
Unemployment rate
(harmonized and seasonally adjus...
10
-25
-20
-15
-10
-5
0
5
10
15
20
25
Flanders
Wallonia
Brussels
Number of unemployed people
(year-on year change, in %)
2...
11
-12
-8
-4
0
4
8
12
16
20
24
-3
-2
-1
0
1
2
3
4
5
6
Real GDP growth (in %)
Bankruptcies (y-o-y change in %, rhs)
(*) Fir...
12
-20
-10
0
10
20
30
Belgium – Domestic employment
(quarter-on-quarter change, number in ‘000)
-28,000 jobs
(-0.6%)
-20,0...
13
5
6
7
8
9
10
11
-20
-10
0
10
20
30
40
50
60
70
80
Expected course of unemployment +12M
(consumer survey, lhs)
Unemploym...
14
Capacity utilisation rate in manufacturing
(in %)
Belgium – Corporate investment
Still little need for investment in ex...
15
-25
-20
-15
-10
-5
0
5
10
15
20
25
Achievement Fall in year t-1 Spring in year t Fall in year t
Investments in fixed ca...
16
-15
-10
-5
0
5
10
2
2,5
3
3,5
4
4,5
5
5,5
6
Investments residential real estate (real y-o-y in %, rhs)
Construction per...
17
-30
-20
-10
0
10
20
30
40
Intra-EU exports
Extra-EU exports
80
84
88
92
96
100
104
108
112
Belgium
Germany
Netherlands
...
18
100
105
110
115
120
125
130
135
140
France
Belgium
Euro-periphery (*)
Relative unit labour costs vis-à-vis Germany
(Q1 ...
19
Real GDP growth 2013 & 2014 (in %)
2013 Belgium Euro Area Germany
EC (Spring) 0.0 -0.4 0.4
Planning Bureau
(July)
0.2 -...
20
-35
-30
-25
-20
-15
-10
-5
0
5
-0,5
0
0,5
1
1,5
2
2,5
Consensus growth 2010
NBB-indicator (4m foreward, rhs)
2010
-15
-...
21
-15
-14
-13
-12
-11
-10
-9
-8
0,8
0,9
1
1,1
1,2
1,3
Consensus growth 2014
NBB-indicator (4m foreward, rhs)
-16
-15
-14
...
22
-400
-300
-200
-100
0
100
200
300
400
500
600
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
10-year OLO (lhs)
Spread vs. German...
23
Belgium – The road of fiscal consolidation
Stability Programme 2013-2016 aims at budget surplus in 2016
-6
-5
-4
-3
-2
...
24
Current consolidation (2010-2016)
versus consolidation in the 80s and 90s
(as a % of GDP)
-16
-14
-12
-10
-8
-6
-4
-2
0...
25
Belgium – The road of fiscal consolidation
Still a relatively huge structural effort remains to be done
Path structural...
26
Belgium – Housing market development
A long-lasting period of rising house prices
50
100
150
200
250
300
350
400
450
50...
27
-50
-30
-10
10
30
50
70
Average
Maximum
Minimum
ECB-estimates of the over/undervaluation of housing markets
in selected...
28
60
80
100
120
140
160 Price-to-income ratio (affordability)
Price-to-rent ratio
Interest-adjusted affordability
Econome...
29
3%
4%
5%
6%
7%
8%
9%
10%
11%
12% Belgium
France
Germany
Ireland
Netherlands
Spain
EMU
Share of construction in
gross va...
30
Base scenario Adverse scenario
In % 2012 2013 2014 2015 2016 2014 2015 2016
Real GDP growth -0.3 0.1 1.2 1.4 1.6 -0.5 -...
31
Belgium - Medium-term growth forecast
Potential economic growth estimated at around 1.6% per year
Estimates medium-term...
32
23/09/2013 
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Belgian economy: on the way to a sustainable but modest recovery

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Belgian economy: on the way to a sustainable but modest recovery

  1. 1. Belgian economy On the way to a sustainable but modest recovery KBC Economic Autumn Seminar 5 September 2013 Johan Van Gompel Chief Economist Department KBC Group
  2. 2. 2 -25 -20 -15 -10 -5 0 5 10 15 20 Germany Austria Belgium France Euro Area Netherlands Finland Spain Italy Portugal Ireland Greece Poland Slovakia Czech Republic Hungary Real GDP Q4 2007 – Q2 2013 (%-change) -25 -20 -15 -10 -5 0 5 Employment Q4 2007 – Q2 2013 (%-change) Belgium - Financial & economic crisis Weathering the crisis reasonably well...
  3. 3. 3 -5 -4,5 -4 -3,5 -3 -2,5 -2 -1,5 -1 -0,5 0 1958 1975 1981 1993 2001 2009 2012 Real GDP decline (peak to trough, in %) Cumulative job losses (in %) GDP and job losses in Belgium’s post-war recessions Employment in the ‘service cheque’-system 0,0% 0,5% 1,0% 1,5% 2,0% 2,5% 3,0% 0 20000 40000 60000 80000 100000 120000 140000 Number of persons employed in the system (lhs) % of total employment (rhs) Belgium - Financial & economic crisis ...decline in working time instead of in employment & public sector (subsidised) employment recording strong growth
  4. 4. 4 93 94 95 96 97 98 99 100 101 102 103 104 Belgium Germany Netherlands France Euro-periphery (*) Standstill in the Belgian economy since early 2011 GDP (real GDP, Q4 2007 = 100) -0.6% -4.3% Belgium - Economic growth Economy emerging from (a mild) recession, growth still very modest (*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain -1,5 -1 -0,5 0 0,5 1 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Real GDP growth (quarter-on-quarter not annualized, in % ) +0.1%
  5. 5. 5 -3,0 -2,5 -2,0 -1,5 -1,0 -0,5 0,0 0,5 1,0 1,5 2,0 -3,0 -2,5 -2,0 -1,5 -1,0 -0,5 0,0 0,5 1,0 1,5 2,0 Belgium Germany Euro-periphery (*) Belgium - Confidence indicators Marked improvement in (consumer) sentiment, still below LT-average Consumer confidence (standard deviation from LT-average) Producer confidence (standard deviation from LT-average) (*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain
  6. 6. 6 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 Private consumption Government consumption Investments Net exports Stocks Real GDP 86 88 90 92 94 96 98 100 102 104 106 Real GDP Private consumption Investments Exports Belgium - GDP and its components (Q4 2007 = 100) Belgium – Contribution to real GDP growth (quarter-on-quarter, annualized, in %) Belgium – Growth components Consumption contributing to growth again, investments remaining weak
  7. 7. 7 10 11 12 13 14 15 16 17 18 19 20 98 99 100 101 102 103 104 105 106 Real private consumption (Q4 2007 = 100) Real disposable income (Q4 2007 = 100) Household savings quote (rhs) Belgium - Income, consumption & saving Belgium - Private consumption The interplay of inflation, wage indexation & savings behaviour 88 90 92 94 96 98 100 102 104 106 Belgium Germany Netherlands France Euro-periphery (*) Real private consumption (Q4 2007 = 100) (*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain
  8. 8. 8 -30 -25 -20 -15 -10 -5 0 5 10 15 2010 11 12 13 14 15 16 17 18 19 20 21 22 Savings quote ( % disposable income, lhs) Consumer confidence (inverted, rhs) -1 -0,5 0 0,5 1 1,5 2 2,5 3 3,5 4 -30 -25 -20 -15 -10 -5 0 5 10 15 20 Consumer confidence (lhs) Private consumption (y-o-y change in %, rhs) Belgium - Household savings As confidence picks up further, consumers are likely to save less
  9. 9. 9 Belgium – Labour market performance Unemployment on the rise again... Unemployment rate (harmonized and seasonally adjusted, in %) Unemployment during and after recessions (0 = quarter preceding the start of the recession, in %) 6 7 8 9 10 11 12 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Q4 1974 - Q4 1978 (*) Q3 1980 - Q3 1984 Q2 1992 - Q2 1996 Q4 2000 - Q4 2004 Q2 2008 - Q2 2012 Q1 2012 - Q1 2016 Kwartalen (*) left-hand scale, other periods right-hand scale(*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain 2 4 6 8 10 12 14 16 18 20 22 Belgium France Germany Netherlands Euro-periphery (*)
  10. 10. 10 -25 -20 -15 -10 -5 0 5 10 15 20 25 Flanders Wallonia Brussels Number of unemployed people (year-on year change, in %) 2 4 6 8 10 12 14 16 18 20 22 Belgium France Germany Netherlands Euro-periphery (*) Unemployment rate (harmonized and seasonally adjusted, in %) (*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain Belgium – Labour market performance ...particularly in Flanders (the more open region in Belgium)
  11. 11. 11 -12 -8 -4 0 4 8 12 16 20 24 -3 -2 -1 0 1 2 3 4 5 6 Real GDP growth (in %) Bankruptcies (y-o-y change in %, rhs) (*) First 7 months 500 1000 1500 2000 2500 3000 3500 4000 4500 Flanders Wallonia Brussels Job losses associated with bankruptcies (number) Belgium – Bankruptcies Crisis continues to influence bankruptcies for some time to come
  12. 12. 12 -20 -10 0 10 20 30 Belgium – Domestic employment (quarter-on-quarter change, number in ‘000) -28,000 jobs (-0.6%) -20,000 jobs (-0.4%) +68,000 jobs (+1.5%) 0 5 10 15 20 25 30 35 -10000 -6000 -2000 2000 6000 10000 14000 18000 Number (year-on-year change in %, lhs) Per 100 unemployed (rhs) Unfilled vacancies: still high and increasing again (Flanders) Belgium – Labour market performance Capacity to absorb the newly jobless...
  13. 13. 13 5 6 7 8 9 10 11 -20 -10 0 10 20 30 40 50 60 70 80 Expected course of unemployment +12M (consumer survey, lhs) Unemployment rate (Eurostat, rhs) -3,5 -2,5 -1,5 -0,5 0,5 1,5 Manufacturing Market services Construction Employment forecast next 12 months (NBB-indicator, standard deviation from LT-average) Belgium – Labour market performance ...and less negativity towards the labour market
  14. 14. 14 Capacity utilisation rate in manufacturing (in %) Belgium – Corporate investment Still little need for investment in expansion 60 64 68 72 76 80 84 88 92 96 100 104 Belgium Germany Netherlands France Euro-periphery (*) Investments (GFCF, Q4 2007 = 100) -20 -15 -10 -5 0 5 10 15 65 70 75 80 85 90 Corporate investment Belgium (y-o-y %-change, rhs) Belgium Euro Area Germany (*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain
  15. 15. 15 -25 -20 -15 -10 -5 0 5 10 15 20 25 Achievement Fall in year t-1 Spring in year t Fall in year t Investments in fixed capital in manufacturing industry (successive forecasts, y-o-y change in %, investment survey NBB) Belgium – Corporate investment NBB-investment survey quite optimistic, though
  16. 16. 16 -15 -10 -5 0 5 10 2 2,5 3 3,5 4 4,5 5 5,5 6 Investments residential real estate (real y-o-y in %, rhs) Construction permits granted (in '000, 3m moving average, lhs) Construction starts houses (in '000, 3m moving average, lhs) -34 -29 -24 -19 -14 -9 -4 1 6 Producer confidence manufacturing Producer confidence construction Producer confidence constructionConstruction indicators Belgium – Construction Building permits suggest imminent improvement in actual housing starts
  17. 17. 17 -30 -20 -10 0 10 20 30 40 Intra-EU exports Extra-EU exports 80 84 88 92 96 100 104 108 112 Belgium Germany Netherlands France Euro-periphery (*) Real exports (Q4 2007 = 100) Belgium – External trade Stagnation since end 2011, but foreign orders turning mid-2013 -4 -3 -2 -1 0 1 2 3 Survey NBB Survey EC Export values (y-o-y change in %, 3mma) Export orders manufacturing industry (st.dev. from LT-average) (*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain
  18. 18. 18 100 105 110 115 120 125 130 135 140 France Belgium Euro-periphery (*) Relative unit labour costs vis-à-vis Germany (Q1 1999 = 100) Belgium – Competitiveness & inflation Inflation in 2013-2014 lower than in neighbouring countries 0,5 1 1,5 2 2,5 3 -2 -1 0 1 2 3 4 5 6 Belgium Euro Area Avg. 3 neighbouring countries (*) Harmonized consumer price index (year-on-year %-change) Headline inflation Core inflation (*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain (*) Netherlands, Germany & France Inflation (in %) Belgium Euro Area Germany 2011 3.4 2.7 2.5 2012 2.8 2.5 2.1 2013 1.2 1.4 1.4 2014 1.4 1.6 1.6
  19. 19. 19 Real GDP growth 2013 & 2014 (in %) 2013 Belgium Euro Area Germany EC (Spring) 0.0 -0.4 0.4 Planning Bureau (July) 0.2 - - Consensus (Aug.) -0.1 -0.6 0.4 KBC (Aug.) 0.1 -0.4 0.6 2014 Belgium Euro Area Germany EC (Spring) 1.2 1.2 1.8 Planning Bureau (July) 1.2 - - Consensus (Aug.) 0.9 0.9 1.7 KBC (Aug.) 1.2 1.1 1.9 Belgium – Real GDP forecast 2013-2014 On the way to a sustainable, but modest recovery 0,5 1 1,5 2 Forecast made in month EMU (consensus) EMU (KBC) Duitsland (consensus) Duitsland (KBC) België (consensus) België (KBC) Evolution consensus forecast real GDP growth in 2014 (in %)
  20. 20. 20 -35 -30 -25 -20 -15 -10 -5 0 5 -0,5 0 0,5 1 1,5 2 2,5 Consensus growth 2010 NBB-indicator (4m foreward, rhs) 2010 -15 -13 -11 -9 -7 -5 -3 -1 1 3 5 7 9 1 1,5 2 2,5 Consensus growth 2011 NBB-indicator (4m forward, rhs) -19 -14 -9 -4 1 6 -1 -0,5 0 0,5 1 1,5 2 2,5 Consensus growth 2012 NBB-indicator (4m forward, rhs) +2.3 % -32 -27 -22 -17 -12 -7 -2 3 -4 -3 -2 -1 0 1 2 Consensus growth 2009 NBB-indicator (4m foreward, rhs) -2.7% +2.0% Consensus forecast made in month -0.3% 2009 2011 2012 Belgium - NBB-indicator & consensus forecast Inertia of the consensus forecast
  21. 21. 21 -15 -14 -13 -12 -11 -10 -9 -8 0,8 0,9 1 1,1 1,2 1,3 Consensus growth 2014 NBB-indicator (4m foreward, rhs) -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -0,5 0 0,5 1 1,5 Consensus growth 2013 NBB-indicator (4m forward, rhs) KBC forecast: 0.1% 2013 KBC forecast: 1.2% 2014 Belgium - NBB-indicator & consensus forecast Inertia of the consensus forecast Consensus forecast made in month
  22. 22. 22 -400 -300 -200 -100 0 100 200 300 400 500 600 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 10-year OLO (lhs) Spread vs. Germany (basis points, rhs) Long-term perspective Belgian interest rate (year averages, in %) Belgium – Interest rates No major upward shock of long-term yields Interest rate spreads Euro Area (10-year rate versus Germany, in basis points) 0 200 400 600 800 1000 1200 1400 Belgium France Italy Spain Portugal Ireland
  23. 23. 23 Belgium – The road of fiscal consolidation Stability Programme 2013-2016 aims at budget surplus in 2016 -6 -5 -4 -3 -2 -1 0 1 Realized budget Target in former Stability Programmes Requirements EC & new Stability Programme 2013-2016 With unchanged policy General government budget (as a % of GDP) 60 70 80 90 100 110 120 130 Realized & new Stability Programme 2013-2016 Former Stability Programme 2012-2015 EC projection for the Euro Area Public debt ratio (as a % of GDP) Euro Area Belgium
  24. 24. 24 Current consolidation (2010-2016) versus consolidation in the 80s and 90s (as a % of GDP) -16 -14 -12 -10 -8 -6 -4 -2 0 2 Structural balance Cyclically adjusted balance 1982-87: 7.8% of GDP 1993-98: 7.7% of GDP 2010-16: 4.6% of GDP Belgium – The road of fiscal consolidation Still a relatively huge structural effort remains to be done Path structural balance (as a % of GDP) -1,8 0,5 -0,1 0,5 1 0,75 1,25 0,75 -4 -3 -2 -1 0 1 2 Change structural balance (= effort already realized) Structural effort still to be achieved Structural balance (MTO 2016 = +0.75% of GDP)
  25. 25. 25 Belgium – The road of fiscal consolidation Still a relatively huge structural effort remains to be done Path structural balance (as a % of GDP) -1,8 0,5 -0,1 0,5 1 0,75 1,25 0,75 -4 -3 -2 -1 0 1 2 Change structural balance (= effort already realized) Structural effort still to be achieved Structural balance (MTO 2016 = +0.75% of GDP) 0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5 Structural effort already realized in 2010-2013 Effort still to be achieved till 2016 (MTO) Budgetary consolidation (structural effort, as a % of GDP)
  26. 26. 26 Belgium – Housing market development A long-lasting period of rising house prices 50 100 150 200 250 300 350 400 450 500 Belgium Germany France Netherlands Austria Ireland Italy Spain Portugal Source: ECB House prices in the Euro Area (1995Q1 = 100) 95 96 97 98 99 100 101 102 103 104 105 106 107 Belgium (ECB-index) Belgium (Eurostat-index) Belgium (FOD-index) EMU (Eurostat-index) All types of dwellings Recent development Belgian property prices (2011Q1 = 100)
  27. 27. 27 -50 -30 -10 10 30 50 70 Average Maximum Minimum ECB-estimates of the over/undervaluation of housing markets in selected EU countries (Q1 2013) (*) Belgium - Housing market valuation ECB’s average estimate (+23%) biased by the two traditional measures (*) Estimates based on four different valuation methods: price-to-income ratio, price-to-rent ratio and two model-based methods (**) Q4 212 instead of Q1 2013
  28. 28. 28 60 80 100 120 140 160 Price-to-income ratio (affordability) Price-to-rent ratio Interest-adjusted affordability Econometric regression (*) Overvalued Undervalued Valuation measures Belgian housing market (long-term average = 100) Source: own calculations 60.8 37.3 8.7 11.6 % overvaluation Price-to-rent ratio (Q2 2013) Price-to-income ratio (Q1 2013) Interest-adjusted affordability (Q1 2013) Econometric regression (*) (Q1 2013) Belgium - Housing market valuation We estimate the overvaluation at some 10% Most reliable and comprehensive approaches (*) Deviation from the ‘fundamental’ price as determined by disposable income, mortgage interest rate, unemployment rate and number of households
  29. 29. 29 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% Belgium France Germany Ireland Netherlands Spain EMU Share of construction in gross value added (in %) Construction sector in line with the pattern of general activity Source: FOD Economie, Eurostat Belgium – Housing market characteristics No excessive building boom, no excessive debt accumulation 0 10 20 30 40 50 60 70 80 90 100 110 2000 2012 Household mortgage debt (as a % of GDP) Source: European Mortgage Federation
  30. 30. 30 Base scenario Adverse scenario In % 2012 2013 2014 2015 2016 2014 2015 2016 Real GDP growth -0.3 0.1 1.2 1.4 1.6 -0.5 -0.5 0.5 Corporate investment growth 0.1 -0.5 1.8 1.9 2.0 -1.3 -1.2 1.0 Residential construction growth -2.8 -3.5 0.8 1.4 1.8 -1.3 -1.0 1.2 Unemployment rate (eop) 8.1 9.0 9.2 8.8 8.4 10.2 11.0 11.2 Households disposable income (avg) 3.5 1.6 2.4 2.5 2.5 0.5 1.0 1.2 Household savings ratio (avg) 15.3 15.1 14.5 14.4 14.3 16.0 16.0 15.2 Inflation (avg y-o-y, CPI) 2,8 1,2 1,4 2,0 2,0 0.6 0.8 1.0 Housing prices, (avg, y-o-y) 2.3 0.0 -6.0 0.5 1.5 -10.0 -4.0 0.0 Housing prices (eop, y-oy) 1.8 -4.3 -3.0 1.0 1.8 na na na Base scenario Adverse scenario In %, eop 2012 2013 2014 2015 2016 2014 2015 2016 Policy rate ECB 0.75 0.50 0.50 1.00 1.50 0.25 0.25 0.25 10-year government bond 2.06 2.50 3.20 3.25 3.60 3.25 3.25 2.75 Spread vis-à-vis Bunds (bp) 75 70 70 60 60 250 225 150 Belgium – APC scenarios Base scenario = very gradual, non-inflationary growth recovery
  31. 31. 31 Belgium - Medium-term growth forecast Potential economic growth estimated at around 1.6% per year Estimates medium-term potential growth (in %, period averages) Period EMU Belgium Empl.growth Product.growth Federal Planning Bureau (1) 2015-2018 1.6 1.7 0.8 0.9 European Commission (2) 2015-2025 1.4 1.5 0.2 1.3 OECD (3) 2012-2017 1.4 1.8 0.7 1.1 IMF (4) 2015-2018 1.6 1.4 - - Oxford Economics (5) 2015-2018 1.2 1.4 - - Consensus (6) 2015-2018 1.5 1.8 - - Average 1.4 1.6 Range 1.2-1.6 1.4-1.8 (1) Regionale economische vooruitzichten 2013-2018 (July 2013) (2) LT-outlook 2012 Ageing Report (3) Potential growth estimate in Economic Outlook April 2012 (4) World Economic Outlook April 2013 (5) Thomson Financial Datastream (6) Consensus Economics Inc. October 2012
  32. 32. 32 23/09/2013 

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