Industry is stiffening and construction is struggling, but the economy is doing well! With GDP growth of 0.3% this quarter, thanks to consumers and businesses.
This year, we should see growth of 1.4%, in contrast to the eurozone economy, which is approaching recession.
The classic engine of the economy
The consumer is a true ally of the Belgian economy. Indeed, the National Bank expects household spending to increase this quarter. Belgian confidence is gradually recovering from the threat of very high energy bills in 2022. Purchasing power remains on the rise, thanks to a solid labor market and wages keeping pace with inflation. However, consumers are paying closer attention to product prices.
The surprising star
The rock of the Belgian economy remains business leaders. They are still willing to invest in digitization and automation in response to structural labor market shortages. Ever-changing energy prices and the need to green the production process are forcing business leaders to invest in ecology and the environment. National Bank expects a decline in these investments in the fourth quarter, even though they contribute to growth. Bank loans still harder to obtain, but companies are holding substantial cash reserves.
Empty pockets
The state has empty pockets. But that's not stopping the government from continuing to pump money into its coffers. Public spending has been rising faster than inflation since the summer. And this trend will continue over the coming months. Indeed, public investment will continue to rise. Particularly during the 2024 elections.
Industry still lagging behind
In this economic machine, some players are weaker, such as industry. Energy prices in energy-intensive sectors are making it difficult for them to keep up. In addition, foreign orders are becoming scarcer due to weaker economic growth in neighboring countries. However, indicators suggest that the worst is behind us for the manufacturing industry. Even if the recovery is still slow, export orders are lagging for the time being.
Construction shrinks
The construction sector has been hardest hit by rising interest rates and the economic slowdown. Companies in the sector are anticipating a further decline in orders, to levels not seen since the financial crisis of 2008 - 2009.
An oasis in the desert
The adage that if construction is doing well, the economy is doing well does not hold true for 2023. Households, public authorities and many companies are spending amply. But this strategy of spending growth has yet to prove its long-term value. The strong competitiveness of companies, coupled with rising wages, could later translate into lower employment, leading to weak growth or stagnant purchasing power. Rising public spending is further widening the budget deficit to an unsustainable level. Consolidation is inevitable, and this will have an impact on growth.
Belgium's spending spree is also reflected in a growing current account deficit, with imports rising faster than exports. This deficit is not yet dramatic, and Belgium has substantial financial reserves, but it does indicate that we are currently living slightly beyond our means. Belgium's current oasis of growth within the eurozone could therefore, in a few years' time, turn into a growth desert within the eurozone.
Source : Trends Tendance
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