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