Economic projections for Belgium – autumn 2004

Twice a year, in June and December, the National Bank of Belgium publishes the macroeconomic projections for the Belgian economy for the current and the following year. The current projections are an update of the projections for 2004 and 2005 published last June. These projections make up the national component of the broad macroeconomic projection exercise conducted within the Eurosystem; the ECB publishes the aggregated results of this exercise for the euro area economy. At the current juncture, real GDP growth in the world’s leading economies is projected to remain robust in 2005, after having reached a peak in 2004. Compared to June, the Eurosystem has revised its projections for 2004 slightly upwards and still expects an acceleration in 2005, albeit at a more modest pace. Since the actual performance was better than expected, real GDP growth in Belgium has been revised upwards by 0.4 p.p. in 2004; it is now expected to accelerate from 1.3 p.c. in 2003 to 2.7 p.c. in 2004 and to stabilise at 2.5 p.c. in 2005, as the pace of growth is decelerating somewhat. It is still outstripping euro area growth, partly owing to stronger private consumption. Having significantly reduced their savings ratio in 2003 and 2004, individuals will gradually be able to rely on an improvement in their purchasing power, largely due to a better employment outlook. Job creation is expected to total 62,000 jobs over the period 2004-2005 while, following a slight fall in 2004, the unemployment rate is likely to remain unchanged, at 7.8 p.c., in 2005. Also, while exports will continue to benefit from robust external demand, the recovery should gradually extend to business investment in a context of strengthening demand, strong profitability and a sound financial environment. On the whole, economic growth should thus be more balanced. Compared to the June projection, headline inflation is expected to be higher, especially in 2005 when it is likely to accelerate to 2.2 p.c., as a result of the increase in oil prices. Underlying inflation excluding energy, unprocessed food and administrative prices is projected to remain moderate due to limited wage increases and subdued pressures from import prices, notwithstanding the high level of commodity prices. Despite a more favourable economic environment, the general government balance is expected to revert from a surplus of 0.3 p.c. of GDP in 2003 to a deficit of 0.3 p.c. in 2004 and 0.4 p.c. in 2005, mainly owing to the disappearance of one-off measures. The latter projection is nevertheless noticeably more favourable than in June. This difference is explained, inter alia, by the inclusion of the fiscal measures adopted in the 2005 budget of the various entities.