Belgium: Belgian economy continues to hum along in Q1
May 31, 2017
According to comprehensive data released by the National Bank of Belgium (NBB) on 31 May, the economy expanded at a respectable pace in the first quarter of the year, thanks to a resurgent external sector. Quarter-on-quarter growth came in at a revised 0.6% (previously reported: +0.5% qoq), marking the highest figure since Q2 2015 and coming in above Q4’s 0.4%. On an annual basis, GDP grew a revised 1.6% in Q1 (previously reported: +1.5% year-on-year), up from Q4’s 1.1%.
Fixed investment fell in the first quarter (Q1: -0.9% qoq; Q4: +4.0% qoq), largely due to tough comparatives as a result of the acquisition of services by a pharmaceutical company, which caused a spike in business investment in the final quarter of last year. Private consumption expanded solidly (Q1: +0.5% qoq; Q4: +0.2% qoq), boosted by a fall in unemployment. Meanwhile, government consumption ticked up slightly (Q1: +0.2%, Q4 +0.4%).
In the external sector, exports grew a robust 0.5% in Q1 (Q4: +1.4% qoq), likely aided by the more favorable economic panorama in major European trading partners and previous government measures to lower labor costs and boost firms’ competitiveness. Imports shrank 0.2%, contrasting the 2.6% increase observed in Q4. As a result, the external sector’s net contribution swung from minus 1.0 percentage point in Q4 to plus 0.6 percentage points in Q1.
Looking ahead, Belgium’s economy should continue to trundle along at a moderate pace, with consistency the name of the game. Following a period of wage growth moderation, wages should begin to pick up, boosting households’ purchasing power, while unemployment should continue to trend lower thanks to government measures to reform the labor market. Investment should be boosted by easy access to credit and a further reduction in social security contributions which will increase firms’ profitability. However, there are risks on the horizon, most notably the country’s future trading relationship with the UK, which is an important trading partner. In addition, the level of public debt remains elevated at over 100% of GDP, and economic inactivity is high among certain sectors of society, in particular the young and non-EU immigrants.
Author: Oliver Reynolds, Economist