The National Bank no longer expects a recession in Belgium

For banking economists, it was certain: Belgium is in recession. The National Bank also predicted a (limited) recession for a long time. In her predictions she made this morning, she canceled out that scenario. There will not be two consecutive quarters of negative growth, the definition of a recession. Only in the current quarter, which is coming to an end, is there a contraction of 0.1 percent. “There is a good chance that we still have to adjust this number upward,” says Geert Langenus, an economist at the National Bank. In the first quarter of next year, the growth will then be 0.1 percent and 0.2 percent in the second quarter. For the full year, the bank expects growth of 0.6 percent, much more than bank economists had predicted.

• Inflation will remain high for years to come

Explaining this positive scenario, Langenus said consumers in particular continued to spend more than expected. Indices measuring consumer confidence have shown a significant decline in confidence for several months. Levels were in a deep recession. This is not at all consistent with actual in-store sales, which remained stable. Industrial production also holds up better. The current picture is one of slowing growth, but no real contraction. Langenus also notes that a number of major confidence indicators are again rising slightly. “This indicates that the quarter with the downturn is already behind us.” An 11 percent increase in the wages of one million employees in January 2023 will give an additional boost to purchasing power, along with the labor market, where unemployment will hardly rise. “Companies will not fire employees quickly because of a shortage in the labor market.” Business investment, however, is showing a downturn.

pain points

“The economic news is better than expected,” sums up NBB Governor Pierre Wench, although he immediately added that uncertainty over a number of forecasts is very high. It also continues to see a number of major pain points in the Belgian economy. “Estimating inflation is particularly difficult. Our models date back to a 20-year period of very low inflation. So it is difficult to make estimates in a high inflation environment.” In the standard scenario, the NBB assumes that inflation will fall from 10.4 percent this year, to 4.4 percent next year and 2.4 percent in 2024. Their costs are much more than that. As a result, inflation will remain very high – perhaps as high as 10 percent next year – and wages will continue to rise rapidly. Then we will eventually end up in a dangerous wage spiral,” warns the governor.

• Increased wages continue to drive inflation

He had a number of critical points. The budget deficit is unsustainably high, rising to 5.3 percent in 2023 and only dropping to 4.9 percent in the coming years. We also have a “double deficit”, because in addition to the budget deficit we also have a current account deficit (= the sum of the trade and capital balance) of 5 percent. Partly because of the cheap euro and expensive energy, but also because of the loss of competitiveness because our wages are rising much faster than neighboring countries because of the automatic index. In ’22 and ’23 it rose 5.6 percent faster. In the next two years, this will decline somewhat in the most favorable scenario, but the barrier will still be 2.3 percent higher than it was in 2021.