This document summarizes an economic outlook presentation from December 2014. It finds that global and eurozone growth is underperforming, with risks of a third consecutive recession in the eurozone. Belgium's growth is stuck in the middle compared to its neighbors. While productivity, competition, and innovation are keys to growth, Belgium underperforms in areas like R&D spending, ICT sector specialization, and cost competitiveness. The document concludes that Belgium needs reforms to improve its innovative culture, cost structure, administrative efficiency, and infrastructure to attract high-skilled jobs and stimulate greater productivity and economic growth.

1. OUTLOOK 2015
Brussels, December 2014

2. Agenda
The economic situation in a nutshell
Can innovation stimulate productivity?
Open discussion

3. Caroline Ven
ECONOMIC SITUATION

4. Global stagnation?
Belgium – stuck in the middle
Outlook & risks

5. Global stagnation?

6. Global growth is underperforming
World GDP growth, in %

7. Slowdown in emerging markets
10
8
6
4
2
0
-2
-4
World
Advanced economies
Emerging market and developing economies

8. Eurozone is lagging behind
4
3
2
1
0
-1
-2
-3
-4
-5
2007 2008 2009 2010 2011 2012 2013 2014
% GDP YoY
Euro area
United States

9. Increasing risk 3th consecutive recession
eurozone
Confidence manufacturing industry, 50= neutral
Confidence manufacturing industry, 50 = neutral

10. Diverging demand patterns
Non-residential investment
per capita
Index, 2005=100
Private consumption
per capita
Index, 2005=100

11. Reflected on the labour market
Unemployment rate in %

12. Combatting deflationary risk
Inflation, consumer prices in % YoY
6
5
4
3
2
1
0
-1
-2
-3
Euro area
Japan
United States

13. Commodity prices Effective exchange
rate euro

14. Monetary policy
Central bank total assets Policy rates
60
50
40
30
20
10
0
% of 2008 GDP
ECB
Federal Reserve
Bank of Japan
2007 2008 2009 2010 2011 2012 2013 2014

15. Less restrictive fiscal policy ahead
Improvement in underlying primary balance
% of potential output

16. Long-term interest rates
0
1
2
3
4
5
6
7
8
Jan-08
Aug-08
Mar-09
Oct-09
May-10
Dec-10
Jul-11
Feb-12
Sep-12
Apr-13
Nov-13
Jun-14
Belgium Germany Spain
France Italy Netherlands
0
1
2
3
4
5
6
01/01/2008
01/10/2008
01/07/2009
01/04/2010
01/01/2011
01/10/2011
01/07/2012
01/04/2013
01/01/2014
01/10/2014
Germany UK US Japan

17. Belgium:
Stuck in the middle

18. Economic growth
6
4
2
0
-2
-4
-6
-8
2007 2008 2009 2010 2011 2012 2013 2014
in %
België Nederland Duitsland Frankrijk eurozone

19. -35
-30
-25
-20
-15
-10
-5
0
5
10
Jan-07
Jun-07
Nov-07
Apr-08
Sep-08
Feb-09
Jul-09
Dec-09
May-10
Oct-10
Mar-11
Aug-11
Jan-12
Jun-12
Nov-12
Apr-13
Sep-13
Feb-14
Jul-14
producers
consumers
Confidence indicators

20. Capacity utilization
industry
in %
69
71
73
75
77
79
81
83
85
1/1/2007
1/1/2008
1/1/2009
1/1/2010
1/1/2011
1/1/2012
1/1/2013
1/1/2014
-15
-10
-5
0
5
10
15
1/1/2007
1/1/2008
1/1/2009
1/1/2010
1/1/2011
1/1/2012
1/1/2013
1/1/2014
Business investment
in % yoy

21. Improving competitiveness
Wage handicap with 3 trading partners
112
110
108
106
104
102
100
98
96
94
92
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Unit labour cost Productivity per employee

22. Labour market
Unemployment rate Employment outlook
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40
7/1/2007
3/1/2008
11/1/2008
7/1/2009
3/1/2010
11/1/2010
7/1/2011
3/1/2012
11/1/2012
7/1/2013
3/1/2014
16
14
12
10
8
6
4
2
0
Euro area
Belgium
Germany
France
Netherlands
2007 2008 2009 2010 2011 2012 2013 2014

23. Disposableincome, savings and
consumption of households
Private consumption, % yoy in volume
Real disposable income of households % yoy
Savings rate of households (% disposable income, rhs)

24. Inflation (YoY, in %)
Underlying inflation Energy products Other components Consumer prices

25. Public finances
2
0
-2
-4
-6
-8
General government net
balance (% GDP)
Belgium Netherlands
Germany France
eurozone
110
100
90
80
70
60
50
40
Gross debt (% GDP)
Belgium Netherlands
Germany France
eurozone

26. Outlook & risks

27. Global outlook
104
102
100
98
96
94
92
90
Jan-
2008
Jan-
2009
Jan-
2010
Jan-
2011
Jan-
2012
Jan-
2013
Jan-
2014
OECD leading indicator
United States
Euro area
Japan
China

28. Growth projections (OECD)
GDP
Volume, % change

29. Belgium
2013 2014 2015
Real GDP (yoy, %) 0,3 0,9 0,9
CPI (yoy, %) 1,2 0,6 0,9
General govt balance (% GDP) -2,6 -2,5 -2,3
Employment (yoy, %) -0,3 0,2 0,4
Unemployment rate (%) 8,4 8,5 8,3

30. Major risks
Geopolitical
tensions
Financial
turmoil
Fiscal &
monetary
stance
Social unrest

31. Themes for discussion
• Do these macroeconomic figures correspond with firm
level developments? How coping with low growth
levels?
• Low interest rates should stimulate investment. Is this
the case?
• What additional policy measures are necessary in
order to stimulate private investment?

32. Walter Vermeeren, Nova Relocation Group
REFLECTIONS

33. Geert Janssens
INNOVATION & PRODUCTIVITY

35. Productivity?
The winning
combination
Innovation Conclusions

36. Productivity

37. Contributions to world GDP
Source: McKinsey Global Institute

38. A first conclusion…
Productivity is not everything,
but it is almost everything.
A country’s ability to improve its standard of
living over time, depends entirely on its ability
to raise its output per worker.
Paul Krugman, The Age of Diminishing Expectations (1994)

39. But…two major caveats
1. Sometimes, productivity growth is artificial

40. Labour productivity in more detail
GDP per
hour
Annual
hours
GDP per
employee
Employment
rate
Corrected
GDP
United States 57,0 1.788 101.895 67,4 67.451
Netherlands 50,9 1.383 70.328 74,9 58.707
Belgium 50,8 1.572 79.834 61,8 51.389
Germany 49,2 1.393 68.528 73,1 54.104
France 49,1 1.489 73.174 64,0 50.192
Source: VKW Metena (Oecd-data)

41. Labour productivity growth
4,5
4
3,5
3
2,5
2
1,5
1
0,5
0
-0,5
GDP per hour
-------- Belgium
-------- Germany
-------- France
-------- Netherlands
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011
Source: Oecd

42. But…two major caveats
1. Sometimes, productivity growth is artificial
2. Measuring productivity is like chasing ghosts
because we have to distinguish between
different factors of contribution

44. Sources of growth
2003-2007 (Belgium)
+3,4%
Labour
0,7 pp
Volume
0,5 pp
Quality
0,2 pp
Non-labour
1,1 pp
Capital
0,7 pp
ICT
0,4 pp
TFP
1,5 pp
Source: The conference Board

45. Average TFP growth, 2008-2013
Greece
Belgium
Spain
France
Italy
Finland
Euro area
Netherlands
Source: The Conference Board
-0,2
-0,8
-0,7
-0,7
-1,4
-1,2
-1,7
-3,4
-4,0
Germany

46. The winning
combination

47. The winning combination
Productivity
Competition
Jobcreation

48. Why productivity growth creates jobs
Profit dividends, reserves jobs
Investments new products jobs
Lower prices consumption jobs
Wages consumption jobs
Productivity gains – where do they go to?

49. Evolution market shares (1)
Evolution market shares - Belgium (2007=100)
101,7
102,4
Source: VKW Metena (Oecd-data)
119,6 119,8
113,5
109,7
109,5
108,7
110,0
106,9
105,8
103,2
99,7
100,0
101,4
101,2
101,7
120
110
100
90
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Index (2007=100)
Year

50. Evolution market shares (2)
118,0
116,0
114,0
112,0
110,0
108,0
106,0
104,0
102,0
100,0
98,0
2007 2008 2009 2010 2011 2012 2013
Belgium
Germany
France
Netherlands
EU-3
• Productmix = +
• Geographical mix = - - -
Source: VKW Metena (Oecd-data)

51. Innovation

52. Business R&D as % of Value-added
0,61
0,43
1,03
1,91
1,79
2,59
2,47
3,26
3,26
3,07
3,78
4,33
4,93
Korea
Finland
Sweden
United States
Germany
Switzerland
France
Belgium
Netherlands
United Kingdom
Spain
Turkey
Greece

53. Share of R&D by foreign owned companies
Electronic apparatus 88,4
Precision instruments 62,1
Electrical machines 61,6
Chemical products 54,9
Services 50,1
Machines 32,1
Total 53,8
Source: FOD Wetenschapsbeleid, Planbureau

54. Innovation scoreboard (bottom 5)
0,0
20,0
40,0
60,0
80,0
81,7
100,0
120,0
119,6
124,9
140,0
160,0
Public R&D expenditures
Trademarks
Patenting firms less 5y old
Networks (autonomous systems)
Wireless broadband
23,7
44,8
71,4
87,1
158,3
129,8
156,0
OECD Belgium

55. The trouble with innovative Belgium?
• Restructuring and capital deepening at its limits
• Cost structure
– wages
– Energy
– Administrative burden,…
• Lack of competition

56. Cumulative price increases 1996-2011
Belgium Neighbours
Food 40,1 25,8
Electricity 100,5 86,0
Fuel 96,0 89,9
Recreation 11,7 0,1
Horeca 49,2 35,4
Clothing 8,2 4,3
Communication -17,9 -28,8
Total 35,2 27,9
Source: Planning Bureau

57. The trouble with innovative Belgium?
• Restructuring and capital deepening at its limits
• Cost structure
– wages
– Energy
– Administrative burden,…
• Lack of competition
• Low specialization in innovative sectors like ICT

58. ICT and high tech sectors under performing

59. The trouble with innovative Belgium?
• Restructuring and capital deepening at its limits
• Cost structure
– wages
– Energy
– Administrative burden,…
• Lack of competition
• Low specialization in innovative sectors like ICT
• Infrastructure: transport and education

60. Conclusions

61. More innovative culture?
• Cost structure
• Competition policy (services, semi-public
sector)
• Administrative efficiency
• Fiscal stability
• Attractiveness scientific and technical jobs
• Infrastructure
• Getting prepared for a new wave

62. Taxi-sector
Rijscholen
…?
Architectuur
Stadsplanning
Auto-industrie
Transport &
logistiek
Verzekeringen
Werkcultuur
Alcohol
consumptie

63. Themes for discussion
• Do you still see in your company opportunities for
growth? Where and how? Proces innovation? New
products? New markets?
• How can you stimulate a culture of creativity and
innovation in your company?
• Which things have to change in order to get such a
culture?

64. Paul Roberts, Cartamundi
REFLECTIONS

65. Open discussion & networking!

66. Thank you:

67. Hope seeing you again at VKW
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