Abstract
This 2002 Article IV Consultation highlights that Belgium’s real GDP growth fell sharply in 2001 to 0.8 percent and remained weak in 2002 at an estimated 0.7 percent. The fundamental factor behind these developments was the slowdown in the economies of Belgium’s trading partners, especially Germany. Thus, Belgium’s export market growth fell from a robust 12.1 percent in 2000 to only 0.6 percent in 2001; in 2002, export markets shrank an estimated 1 percent. In 2002, employment began to decline and unemployment began to rise.
1. This supplement provides revised staff macroeconomic projections for 2003 and 2004. These downward revisions do not change the thrust of the staff appraisal. However, the case for allowing a greater degree of automatic stabilization is strengthened and, as noted in paragraph 29 of the staff report, it would be preferable in these circumstances to allow a modest cyclical deficit to emerge, versus the authorities’ policy of avoiding a deficit.
2. The significant downside risks to the staff projection, described in the staff report, have to some extent materialized. In particular, staff projections for growth in other European countries—especially Germany, but also the Netherlands and France—have been revised down following further weakness in recent indicators. In addition, world oil prices have continued to edge upwards and uncertainty regarding the international situation persists. These developments have been reflected in the Belgian central bank’s leading indicator series, which after rising in November declined sharply in December and January.
3. As a result, the staff has revised its projection of real GDP growth for 2003 down from 1.5 percent to 1.2 percent, and for 2004 from 2.6 percent to 2.3 percent (Table 1). These changes essentially reflect lower export growth due to weaker prospects in Belgium’s key trading partners. Considerable short-term risks persists: falling confidence could further undermine domestic demand, while the economic effects of current international tensions remain difficult to predict.
4. Regarding fiscal policy, the revised projections assume that, in line with stated policy intentions, the authorities will aim to avoid the emergence of a deficit in 2003. To this end, with real GDP growth now projected to be 0.9 percentage points below the 2.1 percent assumed in the budget, adjustments will be required in the course of the year to achieve balance. The authorities, recognizing this, have already announced measures amounting to about 0.2 percent of GDP, although more may be required. Budget balance would imply an increase in the structural surplus, a measure of the thrust of the underlying fiscal position, on the order of ½ percentage point of GDP.
Belgium: Revised Projections
Contribution to growth.
Belgium: Revised Projections
| Staff Report | Revised | |||||||
|---|---|---|---|---|---|---|---|---|
| 2002 | 2003 | 2004 | 2003 | 2004 | ||||
| Est. | Proj. | Proj. | ||||||
| (Changes in percent) | ||||||||
| National Accounts | ||||||||
| Demand and output (volume) | ||||||||
| Private consumption | 1.0 | 1.7 | 1.6 | 1.7 | 1.7 | |||
| Public consumption | 1.8 | 2.0 | 1.8 | 2.0 | 1.8 | |||
| Gross Fixed investment | -2.3 | 0.1 | 2.9 | 0.0 | 2.7 | |||
| Of which: | ||||||||
| Enterprise investment | -4.0 | 0.2 | 3.7 | 0.0 | 3.4 | |||
| Stockbuilding1 | 0.1 | 0.7 | -0.1 | 0.6 | 0.0 | |||
| Total domestic demand | 0.6 | 2.2 | 1.9 | 2.0 | 2.0 | |||
| Exports of goods and nonfactor services | -0.8 | 2.3 | 4.7 | 1.3 | 4.1 | |||
| Imports of goods and nonfactor servises | -1.0 | 3.3 | 3.9 | 2.3 | 3.8 | |||
| Foreign balance1 | 0.1 | -0.6 | 0.8 | -0.7 | 0.5 | |||
| GDP | 0.7 | 1.5 | 2.6 | 1.2 | 2.3 | |||
| Output gap (in percent of potential GDP) | -0.7 | -1.4 | -0.9 | -1.6 | -1.4 | |||
| Public finances, general government | ||||||||
| Revenue | 49.7 | 49.1 | 49.0 | 49.2 | 49.1 | |||
| Expenditure | 49.7 | 49.1 | 48.8 | 49.2 | 49.0 | |||
| Of which: | ||||||||
| Interest on public debt | 6.0 | 5.6 | 5.7 | 5.6 | 5.7 | |||
| Fiscal balance | 0.0 | 0.0 | 0.2 | 0.0 | 0.0 | |||
| Primary balance | 6.0 | 5.5 | 5.9 | 5.5 | 5.8 | |||
| Structural balance | 0.4 | 0.7 | 0.7 | 0.9 | 0.9 | |||
| Structural primary balance | 6.4 | 6.3 | 6.4 | 6.5 | 6.5 | |||
| Gross public debt | 105.5 | 102.7 | 98.7 | 102.9 | 99.4 | |||
Contribution to growth.
Belgium: Revised Projections
| Staff Report | Revised | |||||||
|---|---|---|---|---|---|---|---|---|
| 2002 | 2003 | 2004 | 2003 | 2004 | ||||
| Est. | Proj. | Proj. | ||||||
| (Changes in percent) | ||||||||
| National Accounts | ||||||||
| Demand and output (volume) | ||||||||
| Private consumption | 1.0 | 1.7 | 1.6 | 1.7 | 1.7 | |||
| Public consumption | 1.8 | 2.0 | 1.8 | 2.0 | 1.8 | |||
| Gross Fixed investment | -2.3 | 0.1 | 2.9 | 0.0 | 2.7 | |||
| Of which: | ||||||||
| Enterprise investment | -4.0 | 0.2 | 3.7 | 0.0 | 3.4 | |||
| Stockbuilding1 | 0.1 | 0.7 | -0.1 | 0.6 | 0.0 | |||
| Total domestic demand | 0.6 | 2.2 | 1.9 | 2.0 | 2.0 | |||
| Exports of goods and nonfactor services | -0.8 | 2.3 | 4.7 | 1.3 | 4.1 | |||
| Imports of goods and nonfactor servises | -1.0 | 3.3 | 3.9 | 2.3 | 3.8 | |||
| Foreign balance1 | 0.1 | -0.6 | 0.8 | -0.7 | 0.5 | |||
| GDP | 0.7 | 1.5 | 2.6 | 1.2 | 2.3 | |||
| Output gap (in percent of potential GDP) | -0.7 | -1.4 | -0.9 | -1.6 | -1.4 | |||
| Public finances, general government | ||||||||
| Revenue | 49.7 | 49.1 | 49.0 | 49.2 | 49.1 | |||
| Expenditure | 49.7 | 49.1 | 48.8 | 49.2 | 49.0 | |||
| Of which: | ||||||||
| Interest on public debt | 6.0 | 5.6 | 5.7 | 5.6 | 5.7 | |||
| Fiscal balance | 0.0 | 0.0 | 0.2 | 0.0 | 0.0 | |||
| Primary balance | 6.0 | 5.5 | 5.9 | 5.5 | 5.8 | |||
| Structural balance | 0.4 | 0.7 | 0.7 | 0.9 | 0.9 | |||
| Structural primary balance | 6.4 | 6.3 | 6.4 | 6.5 | 6.5 | |||
| Gross public debt | 105.5 | 102.7 | 98.7 | 102.9 | 99.4 | |||
Contribution to growth.