OUTLOOK 2015Leuven, November 2015

Agenda

The economic situation in a nutshell

Can innovation stimulate productivity?

Open discussion

ECONOMIC SITUATIONCaroline Ven

Global stagnation?

Belgium – stuck in the middle

Outlook & risks

Global stagnation?

World GDP growth, in %

Global growth is underperforming

Slowdown in emerging markets

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20122014

2016

-6

-4

-2

0

2

4

6

8

10

WorldAdvanced economiesEmerging market and developing economies

Eurozone is lagging behind

2007 2008 2009 2010 2011 2012 2013 2014-5

-4

-3

-2

-1

0

1

2

3

4

Euro areaUnited States

% G

DP

YoY

Increasing risk 3th consecutive recession eurozone

Confidence manufacturing industry, 50= neutral

Confidence manufacturing industry, 50 = neutral

Diverging demand patterns

Non-residential investment per capita

Index, 2005=100

Private consumptionper capita

Index, 2005=100

Reflected on the labour market

Unemployment rate in %

Inflation, consumer prices in % YoY

2005Q1

2005Q4

2006Q3

2007Q2

2008Q1

2008Q4

2009Q3

2010Q2

2011Q1

2011Q4

2012Q3

2013Q2

2014Q1-3

-2

-1

0

1

2

3

4

5

6

Euro areaJapanUnited States

Combatting deflationary risk

Commodity prices Effective exchange rate euro

Monetary policy

2007 2010 2011 2012 20130

10

20

30

40

50

60

% of 2008 GDP

ECB

Federal Reserve

Bank of Japan

Central bank total assets Policy rates

Less restrictive fiscal policy ahead

Improvement in underlying primary balance% of potential output

Long-term interest rates

Jan-08

Aug-08

Mar-

09

Oct-09

May

-10

Dec-10Ju

l-11

Feb-12

Sep-12

Apr-13

Nov-13

Jun-14

0

1

2

3

4

5

6

7

8

Belgium GermanySpain FranceItaly Netherlands

01/01/2

008

01/11/2

008

01/09/2

009

01/07/2

010

01/05/2

011

01/03/2

012

01/01/2

013

01/11/2

013

01/09/2

0140

1

2

3

4

5

6

Germany UKUS Japan

Belgium:Stuck in the middle

2007 2008 2009 2010 2011 2012 2013 2014-8

-6

-4

-2

0

2

4

6

België Nederland Duitsland Frankrijk eurozone

in %

Economic growth

Jan-07

Jun-07

Nov-07

Apr-08

Sep-08

Feb-09

Jul-0

9

Dec-09

May

-10

Oct-10

Mar-

11

Aug-11Jan

-12

Jun-12

Nov-12

Apr-13

Sep-13

Feb-14

Jul-1

4-35

-30

-25

-20

-15

-10

-5

0

5

10

producers

consumers

Confidence indicators

Capacity utilization industry

in %

1/1/2

007

1/1/2

008

1/1/2

009

1/1/2

010

1/1/2

011

1/1/2

012

1/1/2

013

1/1/2

01469

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

Business investment in % yoy

Improving competitivenessWage handicap with 3 trading partners

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

92

94

96

98

100

102

104

106

108

110

112

Unit labour cost Productivity per employee

7/1/2

007

3/1/2

008

11/1/2

008

7/1/2

009

3/1/2

010

11/1/2

010

7/1/2

011

3/1/2

012

11/1/2

012

7/1/2

013

3/1/2

014-40-35-30-25-20-15-10

-505

10

201420132012201120102009200820070

2

4

6

8

10

12

14

16Euro area Belgium Germany France Netherlands

Unemployment rate Employment outlook

Labour market

Disposable income, savings and consumption of households

Private consumption, % yoy in volumeReal disposable income of households % yoy

Savings rate of households (% disposable income, rhs)

Inflation (YoY, in %)

Underlying inflation Energy products Other components Consumer prices

Public finances

20072008200920102011201220132014-8-7-6-5-4-3-2-101

General government net balance (% GDP)

Belgium NetherlandsGermany Franceeurozone

2007200820092010201120122013201440

50

60

70

80

90

100

110

Gross debt (% GDP)

Belgium NetherlandsGermany Franceeurozone

Outlook & risks

Global outlook

Jan-...

Jun-...

Nov-...

Apr-...

Sep-...

Feb-...

Jul-..

.

Dec-...

May

-...

Oct-...

Mar-

...

Aug-...Jan

-...

Jun-...

Nov-...

Apr-...

90

92

94

96

98

100

102

104

OECD leading indicator

United StatesEuro areaJapanChina

Growth projections (OECD)

GDPVolume, % change

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

Major risks

Geopolitical tensions

Financial turmoil

Fiscal & monetary

stanceSocial unrest

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?

REFLECTIONS Patrick O, CEO Viessmann Belgium

INNOVATION & PRODUCTIVITYGeert Janssens

Productivity? The winning combination

Innovation Conclusions

Productivity

Contributions to world GDP

Source: McKinsey Global Institute

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)

Labour productivity growth

-0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011

GDP per hour

-------- Belgium-------- Germany-------- France-------- Netherlands

Source: Oecd

Annual hours worked per year

• V

1.200

1.600

2.000

2.400

2.800

3.200

3.600

1870 1880 1890 1900 1913 1920 1929 1938 1950 1960 1973 1980 1990 2000 2010

Belgium France Germany Netherlands U.S.

Productivity and hours worked

1.300

1.400

1.500

1.600

1.700

1.800

1.900

20 25 30 35 40 45 50 55 60 65 70

Annu

al h

ours

wor

ked

GDP per hour worked

BE

DE NL

FR

US

Source: OECD

Chasing ghosts

Labour productivity measures cannot distinguish between gains from more equipment per worker and gains from more efficiency or better technology use per worker

Bart van Ark, The Conference Board, University of Groningen

Annual Total Factor Productivity growth

-1

-0,5

0

0,5

1

1,5

1995 2000 2005 2010

Total Factor Productivity

-------- Belgium-------- Germany-------- France-------- Netherlands

TFP in Belgium

Growth 2003-2007 = 3.4% (arbeidsproductiviteit 2.6)

Hours worked

Labour composition

Non-ICT capital

ICT capital

TFP growth

0.5 0.2 0.7 0.4 1.5

Growth 2008-2013 = -0.1 (arbeidsproductiviteit -2.0)

Hours worked

Labour composition

Non-ICT capital

ICT capital

TFP growth

0.9 0.2 2.2 0.0 -3.4

Sourrce: The Conference Board, Total Economy Database

Average TFP growth, 2008-2013

Source: The Conference Board

-0,2

-0,7

-0,7

-0,8

-1,2

-1,4

-1,7

-3,4

-4,0

Germany

Netherlands

Euro area

Finland

Italy

France

Spain

Belgium

Greece

The winning combination

Winning combination?

In a small open economy productivity gains are very much intertwinted with competitiveness…

Competitiveness is a function of • cost structure• innovative capacity• Infrastructure

Jobcreation depends on competitiveness but also on productivity

The winning combination

Productivity

Jobcreation

Competition

Why productivity growth creates jobs

Profit dividends, reservesjobs

Investments new products jobs

Lower prices consumptionjobs

Wages consumptionjobs

Productivity gains – where do they go to?

Productivity and employment

Source: McKinsey Global Institute

Evolution market shares (1)

Source: VKW Metena (Oecd-data)

119,6 119,8

113,5

109,7

109,5

108,7

110,0

106,9105,8

103,2

99,7100,0

101,7 101,4

101,2

102,4

101,7

90

100

110

120

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Index

(2007=

100)

Year

Evolution market shares - Belgium (2007=100)

Evolution market shares (2)

98,0

100,0

102,0

104,0

106,0

108,0

110,0

112,0

114,0

116,0

118,0

2007 2008 2009 2010 2011 2012 2013

BelgiumGermanyFranceNetherlandsEU-3

• Productmix = +• Geographical mix = - - -

Source: VKW Metena (Oecd-data)

Innovation

Business R&D as % of Value-added

0,43

0,61

1,03

1,79

1,91

2,47

2,59

3,07

3,26

3,26

3,78

4,33

4,93

GreeceTurkey

SpainUnited Kingdom

NetherlandsBelgium

FranceSwitzerland

GermanyUnited States

SwedenFinland

Korea

Share of R&D by foreign owned companies

Source: FOD Wetenschapsbeleid, Planbureau

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

Innovation scoreboard (bottom 5)

0,020,0 40,0

60,080,0

100,0120,0

140,0160,0

Wireless broadband

Networks (autonomous systems)

Patenting firms less 5y old

Trademarks

Public R&D expenditures

23,7

44,8

71,4

81,7

87,1

158,3

129,8

124,9

119,6

156,0

OECD Belgium

The trouble with innovative Belgium?

• Restructuring and capital deepening at its limits• Cost structure

– wages– Energy– Administrative burden,…

• Lack of competition

Cumulative price increases 1996-2011

Belgium Neighbours

Food 40,1 25,8Electricity 100,5 86,0Fuel 96,0 89,9Recreation 11,7 0,1Horeca 49,2 35,4Clothing 8,2 4,3Communication -17,9 -28,8

Total 35,2 27,9Source: Planning Bureau

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

ICT and high tech sectors under performing

Computer,

electronic and

optical products

Electrical equipment

Machinery and

equipment

IT and other

information services

- 60

- 40

- 20

0

20

40

60

- 50 - 30 - 10 10 30 50 70

Hours

work

ed g

row

th

Value added growth

Growth contributions from digitalisation

2001-2007 2008-2011

Technology effect through ICT-producing sector 0.28 0.16

Investment effect from ICT using industries 0.44 0.21

Network effects on q from ICT use in non ICT 0.25 -0.24

Total effects from ICT prod, investment and use 0.97 0.14

Source: Corrado and Jaeger, van Ark, The Conference Board

Contribution to average annual gdp growth for eight major EU economies: Austria, Finland, France, Germany, Italy, Netherlands and Spain

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

Recommendations

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

Rijscholen

Taxi-sector

Architectuur

Stadsplanning

Auto-industrie

Transport & logistiek

Verzekeringen

Werkcultuur

…?

Alcohol consumptie

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?

REFLECTIONS

Laurent Boes, Disruptive Technologies Evangelist

IBM Benelux

Open discussion & networking!

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