Belgium: Economy gains some momentum in Q4 but growth remains subdued
February 28, 2017
Belgium’s economy gained some speed in the final quarter of last year, although growth over 2016 as a whole remained modest. GDP in Q4 increased a seasonally- and calendar-adjusted 0.5% compared to the prior quarter, according to comprehensive data released by the Bank of Belgium (NBB), coming in above the 0.4% preliminary estimate reported on 30 January and a notable rise from Q3’s 0.2%. Despite this, economic growth slowed over last year as a whole relative to 2015, dipping from 1.5% to 1.2%. It was dragged lower in particular by sluggish private consumption growth as a result of wage moderation and higher inflation taking their toll on consumers’ purchasing power.
Q4’s acceleration came on the back of a solid expansion in fixed investment, which rose 1.5% quarter-on-quarter. The drivers were likely the same as in previous quarters, with firms aided by the continued easy access to credit, due in part to the ECB’s loose monetary stance, as well as by greater profitability thanks to a reduction in labor costs and social security contributions. Government consumption in Q4 rose 0.4%, contrasting the 0.1% drop recorded in Q3 and marking the fastest expansion in nine quarters. In contrast, private consumption growth slowed in Q4, capping off a disappointing year (Q4: +0.2% quarter-on-quarter; Q3: +0.4% qoq) Consumers continued to feel the pinch due to the double whammy of low wage increases and higher inflation.
On the external side, exports sped up considerably, expanding 2.0% in Q4 (Q3: +0.6% qoq), likely propelled by healthy growth in the Euro area and the UK. Imports also picked up pace, rising 2.2% over the same period (Q3: +0.3% qoq). As a result, the external sector’s net contribution to growth slipped from 0.3 percentage points in Q3 to minus 0.1 percentage points in Q4.
Looking ahead, growth should pick up moderately this year and next and become more demand-oriented, although the economy will hardly be racing along. Investment is set to remain strong as further cuts to employers’ social security contributions increase profitability. In addition, following a period of low wage growth due to indexation freezes, wages should pick up again, giving private consumption a shot in the arm. External risks abound however, particularly concerning the shape of the country’s future relationship with the UK, an important trading partner.
Author: Oliver Reynolds, Economist