Belgium - OECD Economic Outlook, December 2020 by OECD

 121

Belgium Strongly hit by the COVID-19 crisis, GDP is set to contract by 7.5% in 2020 and recover slowly thereafter. The economy is currently affected by strict containment measures adopted in late 2020. While easing from current levels, such measures are expected to continue to fight sporadic virus outbreaks until a vaccine is rolled out. They will weigh on household consumption, with precautionary saving remaining high in the coming two years. Weak and uncertain growth prospects as well as squeezed profit margins are set to constrain business investment. Until vaccination becomes widespread, the authorities should enhance effective measures against virus outbreaks, such as testing, tracing and isolating, while strengthening the public health system as planned. They should continue fiscal support, targeting firms directly affected by confinement measures, to avoid unnecessary business failures and extension of support to non-viable businesses. As part of the recovery plan, the new government intends to increase public investment, focusing on the digital agenda and energy transition, which is welcome in order to support the recovery while adapting to new challenges. Belgium Saving remains high under uncertain circumstances Q-o-q % changes 10

A durable improvement in confidence and investment will take time

% of disposable income 20

← Household consumption

Household saving ratio →

15 16

-5

-10

-15

2005 2007 2009 2011 2013 2015 2017 2019 2021

Q-o-q % changes 20

← Business investment Business sentiment¹ →

Index 4 3

-5

-1

-10

-2

-15

-3

-20

-4

-25

2005 2007 2009 2011 2013 2015 2017 2019 2021

-5

1. The series is based on the quarterly average and is normalised using its long-term average and standard deviation. Source: OECD Economic Outlook 108 database; and National Bank of Belgium. StatLink 2 https://doi.org/10.1787/888934217874

OECD ECONOMIC OUTLOOK, VOLUME 2020 ISSUE 2: PRELIMINARY VERSION © OECD 2020

122 ď ź

Belgium: Demand, output and prices 2017

2018

Current prices EUR billion

Belgium GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1,2 Total domestic demand Exports of goods and services Imports of goods and services Net exports1

445.0 229.1 102.4 103.6 435.1 5.2 440.4 370.2 365.6 4.6

Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation3 Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

_ _ _ _ _ _ _ _ _

2019

2020

2021

2022

Percentage changes, volume (2015 prices)

1.8 1.9 1.3 3.4 2.1 0.3 2.4 0.6 1.3 -0.5

1.7 1.5 1.7 3.4 2.0 -0.4 1.5 1.0 0.8 0.2

-7.5 -10.6 2.4 -13.5 -8.3 0.5 -7.7 -7.8 -8.1 0.2

4.7 6.2 0.6 5.7 4.6 -0.1 4.5 5.1 4.9 0.2

2.7 2.4 1.0 3.9 2.4 0.0 2.4 3.9 3.5 0.3

1.6 1.7 0.6 0.9 0.5 2.3 1.2 0.5 0.7 0.6 1.3 1.5 1.3 0.5 0.6 6.0 5.4 5.7 7.9 6.8 4.7 6.2 14.3 9.5 8.0 -0.8 -1.9 -11.3 -8.1 -4.8 118.3 120.9 139.2 141.5 143.0 99.8 98.1 116.3 118.7 120.2 -0.8 0.3 -1.1 -0.3 0.0

1. Contributions to changes in real GDP, actual amount in the first column. 2. Including statistical discrepancy. Statistical discrepancy contributes to 5.3% in 2019 percentage changes. 3. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco. Source: OECD Economic Outlook 108 database.

StatLink 2 https://doi.org/10.1787/888934217893

The resurgence of the epidemic has required new restrictions The epidemic has surged again, with the number of confirmed cases rising to higher levels than during the peak in April. The authorities had removed the generalised lockdown measures beginning from May, with some exceptions such as the ban on mass events, but they have introduced broad-based strict measures since October. These include the closure of bars and restaurants, a night curfew adopted in mid-October, the closure of shops selling non-essential products and the obligation to telework (with some exceptions) for six weeks beginning in early November. The number of hospitalised patients and the occupation of intensive care beds had surpassed their peaks earlier this year at the end of October but began to decline thereafter.

The economy has been severely affected GDP declined by 14.8% in the first half of 2020, which was only partially offset by the rebound in the third quarter. The negative impact was less severe than initially expected as some sectors, such as professional services, demonstrated resilience. In addition, the policy measures that were adopted swiftly helped to sustain economic activity significantly. The gradual removal of the initial containment measures led to a partial and uneven recovery. Business sentiment has recovered from the trough earlier this year, but remains well below pre-crisis levels. Due to the new strict containment measures, the turnover in private businesses dipped to 17% below normal levels in mid-November. It is particularly subdued in sectors that OECD ECONOMIC OUTLOOK, VOLUME 2020 ISSUE 2: PRELIMINARY VERSION ÂŠ OECD 2020

 123 have been strongly affected by various containment measures for long, such as the arts and entertainment sector as well as the food and accommodation sector (at 77% and 66% below normal levels, respectively), which is likely to extend into next year.

Policy measures have been swiftly deployed The national authorities have introduced a number of fiscal measures following the generalised lockdown in early 2020, which amount to 3.9% of GDP. Direct income support measures account for a significant part of this amount. They include, among others, emergency measures in the temporary layoff scheme and replacement income for the self-employed, as well as compensations for businesses. These were effective in protecting jobs and businesses and in sustaining economic activity. To address short-term liquidity problems, the authorities made it possible to defer the repayment of credits and introduced a guarantee scheme for new credits and credit lines (which amounts to 10.7% of GDP). These measures, along with the European Central Bank’s accommodative monetary policy and prudential policy easing by the National Bank of Belgium, have supported aggregate demand. With the economy on a recovery path, some measures were phased out progressively in early autumn. Notably, the emergency measures in the temporary layoff scheme no longer applied to new applicants except for those firms directly affected by confinement measures, while the benefits for those already on temporary layoff are continuing until the end of 2020. However, the federal government reintroduced the emergency measures following the tightening of containment measures in early November.

The economy is set to continue to recover slowly in an uncertain environment The recovery will be temporarily disrupted by the new strict containment measures and is expected to continue being hampered by potential restrictions imposed in response to sporadic outbreaks of the pandemic until vaccination against the virus becomes general in late 2021. The recovery in business investment will be slow, due to weakened financial positions of firms and uncertain economic prospects. As the emergency measures in the temporary layoff scheme cannot absorb all employment losses, unemployment is set to rise from the fourth quarter of 2020, which will weigh on wages and prices. Employment losses will hurt private consumption, despite generous unemployment benefits, as job market uncertainty will keep precautionary saving high. In addition, consumption of some goods and services will remain restrained, in particular those related to the sectors directly affected by containment measures. Exports will rise as the global economy recovers.

Policy measures should facilitate a solid recovery The government plans to give firms a temporary tax exemption on their profits if they use them to buttress their capital. This should help strengthen firms’ financial positions. Given the recent tightening of containment measures, fiscal support should be continued. At the same time, the authorities should target these measures, including the temporary layoff scheme, the deferral of loan repayments and public guarantees, strictly to those directly affected by confinement measures to avoid extending support to non-viable businesses. This will also help safeguard fiscal discipline, as public debt in Belgium is already very high. As some jobs will be permanently lost, the authorities should strengthen public employment services to promote upskilling and reskilling of workers.