Economic projections for Belgium - Autumn 2005

Twice a year, in June and December, the National Bank of Belgium publishes macroeconomic projections for the Belgian economy for the current and the following year. 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. The current projections are an update of the projections for 2005 and 2006 published in the spring in the Economic Review, 2nd quarter 2005. Since then, the price of oil has continued to rise and is expected to remain at around 60 dollars per barrel of Brent over the projection horizon. The US dollar has appreciated against the euro. The growth of activity has remained buoyant in most of the economic regions. In that context, after a temporary slowdown at the end of last year and the start of the current year, GDP growth in the euro area should strengthen in the second half of 2005 and in 2006. Inflation projections have been revised upwards, being influenced by the persistent high level for oil prices. In Belgium, after dipping at the beginning of the year, growth produced a modest recovery as predicted in the spring projections. The gradual strengthening of activity seen from the third quarter of 2005 should be maintained. In the short term, the recent business survey results indicate an upturn since the summer. More fundamentally, the sturdier growth appears to originate from the external sector, after the recent strength of demand from the business sector, both having so far stood up relatively well in the face of the oil shock. Conversely, the contribution of private consumption demand is likely to be curbed at first by the contained evolution in households purchasing power. In all, real GDP growth looks set to fall from 2.4 p.c. in 2004 to 1.4 p.c. in 2005. In 2006, it is predicted to reach 2.2 p.c., a downward revision of 0.2 percentage point compared to the spring, but once again a slightly higher figure than that forecast for the euro area. The number of persons in work in Belgium is estimated to increase by 0.7 p.c. in 2005, then by 0.5 p.c. in 2006, following a rise of 0.6 p.c. in 2004. In all, net job creation is expected to total around 75,000 for the period 2004-2006 as a whole, following a cumulative decline of 10,000 jobs in 2002 and 2003. However, in view of the expansion of the labour force, the number of job seekers is likely to continue to rise ; the unemployment rate is forecast at 8.4 p.c. in 2005 and expected to remain at that level in 2006. Overall, Inflation, measured by the harmonised index of consumer prices (HICP) is expected to average 2.5 p.c. in 2005 and 2.3 p.c. in 2006, or 0.3 and 0.4 point respectively above the spring projections. The forecast movements in Inflation and the revisions since the spring mainly reflect the rise in crude oil prices. The projections for public finances take account of the measures which were announced and were sufficiently well-defined in the budgets for 2006. Conversely, they do not anticipate any additional measures which might yet be adopted. On basis of the latest information, it seems that public finances should be in balance once again at the end of 2005. Taking account of the partly structural and partly non-recurring consolidation measures introduced in connection with the budgets, the projections for 2006 now point to a deficit of just 0.4 p.c. of GDP against 1.3 p.c. of GDP in the spring projections. The deterioration in comparison with 2005 is likely to be due to a further fall in the primary balance following the decline in revenue attributable to the effects of the personal income tax reform on the tax assessments, and to the reduction in social security contributions.