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
KBC Economic Autumn Seminar 5 September 2013 Johan Van Gompel
Chief Economist Department KBC Group
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
-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
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
-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
-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
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
-30
-25
-20
-15
-10
-5
0
5
10
15
20 10
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
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
-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
-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
-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
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
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
-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
-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 construction Construction indicators
Belgium – Construction Building permits suggest imminent improvement in actual housing starts
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
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
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
-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
-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
-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
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
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
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
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
-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
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
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
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
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 0.9European Commission (2) 2015-2025 1.4 1.5 0.2 1.3OECD (3) 2012-2017 1.4 1.8 0.7 1.1IMF (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 1.6Range 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
23/09/2013
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