Belgium's economy in a nutshell - Economic outlook of October 2020

Recent cyclical developments indicate that Belgium enjoyed a relatively good GDP growth in 2019 (+1.7 % year-on-year, compared to +1.8 % in 2018), thanks to a strong domestic demand (excluding inventories changes). Moreover, GDP growth was more vigorous in Belgium than in the European Union (+1.5 %) and in the euro area (+1.3 %) in 2019. During the second quarter of 2020, the Belgian GDP strongly decreased (-13.9 % year-on-year), which is the result of severe containment measures taken by the government and the cessation of activities considered as non-essential. In particular, private consumption and investment expenditures have collapsed. Only net exports have positively contributed to GDP growth in the second quarter of 2020.

Services are the main driver of economic growth since 2014.

The production index in the manufacturing industry (construction excluded) increased in 2019 for the fourth time in a row while the production index in the construction sector has slightly decreased. However, the decline in production of these two branches of activity observed in the first quarter of 2020, one year apart, was sharply intensified in the second quarter of 2020, mostly due to the partial or total cessation of activity in various industries following the containment measures taken by the government to counter the expansion of the Covid-19 pandemic.

Business demographics continued to be strong in 2019, with more business creations than closures and a net balance of 37,546 units, the highest net balance observed over the period 2015-2019. While this entrepreneurial dynamism continued in the first quarter of 2020, the situation deteriorated somewhat afterwards.

Overall, 2019 proved to be a favourable year for the labour market, with employment rates continuing to rise and unemployment rates declining (both total unemployment and unemployment among young people under 25). Conversely, in the second quarter of 2020, only the total unemployment rate performed well, continuing to fall to 4.9 % (compared with 5.3 % in the second quarter of 2019).

After a slowdown observed in the second quarter of 2020, driven by a decline in the prices of the main energy products and, to a lesser extent, by a deceleration of inflation in services, total inflation (measured through HICP) started to rise again in the third quarter of 2020.

As regards the near-term growth prospects for Belgium, the FPB is predicting a major economic recession in 2020 as a result of the global coronavirus crisis. Consequently, GDP would fall by 7.4 % (which is less pronounced than initially expected) in 2020 after having grown by 1.7 % in 2019. Nevertheless, the recovery is already expected to take place in 2021 with an economic growth of 6.5 %. Naturally, given the uncertainties still surrounding the pandemic and its evolution, these forecasts are likely to be revised in the coming months.