The Belgian economy was able to avoid a recession scenario last winter, but that does not mean that all economic concerns have been removed. Several warning signs for our economy remain in the red.
Last winter, the Belgian economy clearly held up better than previously feared. However, that does not mean that all economic worries are immediately behind us, and that our economy is back on track for robust growth. In addition to the positive signs of cooling inflation, falling prices for energy and many raw materials and the strong increase in purchasing power, there are also important warning signs for the coming months.
1. German recession
The German economy fell into recession last winter, and there does not seem to be much improvement in the short term. Leading indicators continue to point to a difficult economic situation. Germany remains our most important trading partner, and in the past economic difficulties in Germany usually implied economic difficulties for us as well.
2. Failing industry
Activity in Belgian industry already fell by 1.3% last year, and our survey of Flemish industrial companies suggests that this year will be even more difficult with an expected contraction of 4%.
3. Disturbing signals from chemistry
Chemistry is one of our most important industrial sectors, and there are some worrying signals coming from that corner. In the first quarter, capacity utilization in the chemical industry fell to its lowest level ever. There was some recovery in the second quarter, but capacity utilization in the sector remains low from a historical perspective.
4. Export under pressure
Belgian exports in the first quarter were 3.6% (in volume) lower than a year earlier, and that decline accelerated throughout the quarter. In view of the developments at our most important trading partners, the outlook for exports in the coming months is not immediately rosy.
5. Current account in the red
The current account of the balance of payments, which has been largely positive for the past 35 years, plunged deep into the red in 2022. The National Bank, the Planning Bureau, the European Commission, the IMF and the OECD all assume that our current account will remain negative in the coming years, a painful illustration of our damaged competitive position.
6. Delayed lending
The impact of the strong interest rate hikes by the ECB is gradually becoming more and more apparent. Due in particular to higher interest rates, lending is clearly slowing down. This implies that investments by companies and in homes are increasingly being questioned.
7. Decreasing number of building permits
The number of new building permits was 13% lower in the first quarter than a year earlier. The decline in new construction is partly offset by an increase in renovations, mainly linked to energy efficiency, but construction activity is nevertheless under pressure.
8. Stagnant house prices
The rise in average house prices has virtually come to a standstill in recent months. In the meantime, the number of transactions has clearly decreased, and sales times are increasing. We are probably also on track in Belgium for a fall in average house prices in the coming quarters (in most Anglo-Saxon and Scandinavian countries this is already the case today).
9. Increasing number of bankruptcies
Since the corona break, the number of bankruptcies has clearly increased. This is at least partly a catch-up after there were exceptionally few bankruptcies in the corona years, but this could of course quickly develop into something worse.
10. The unsustainable budget deficit
All Belgian governments together are on course for a total budget deficit of 28 billion euros this year, which is unsustainably high. At some point, efforts will have to be made to bring that deficit back within limits. Those efforts will weigh on economic activity.
Our economy has performed better than feared in recent months, but that was mainly due to growth that was ‘borrowed’ from the future through stronger wage increases and the large budget deficit. The solid growth of the past few months is therefore no guarantee for the coming quarters. Several warning signs for our economy remain in the red. Against this background, the need also remains high for policymakers to pay more attention to the situation in the industry and to the competitive position of our entire economy.
Bart Van Craeynest is Chief Economist at Voka and author of the book Back to the facts
2023-06-30 15:38:36
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