BELGIAN PRIME NEWS
B B P P N N
CONSENSUS FORECAST
MACROECONOMIC DEVELOPMENTS MACROECONOMIC DEVELOPMENTS
Belgium
Employment ¹ Consumer prices ¹
Current account ² Real GDP ¹
Belgium Previous consensus Consensus
Euro area ³
BELGIAN PRIME NEWS
General government balance ² Primary balance ²
Public debt ²
Euro area
-2.7 0.7
2003 e 2004 p 2005 p
1.1 -0.4 1.5
5.8 2.1
0.4 0.8
2.3
0.8 0.4
-2.7 0.8
Belgium Previous consensus Consensus
Euro area ³
100.7
-0.2
1.7 0.3 1.8 0.7
70.9
0.8 0.9 1.6
0.6 -2.6
70.9
¹ P.c. change. ² In p.c. of GDP. ³ European Commission (forecast available since April 2004).
CONSENSUS: Average of participants' forecasts
0.5
3.8 0.3
0.1
0.3
70.6
2.5
1.9
-0.1
1.8
4.6
95.4 4.7 -0.4
3.9 1.7 2.4
97.5 5.1 5.0
3.6 1.8 2.3 Special topic :
Belgium's recent growth performance
3.7
97.5
2.5
4.0 -0.4 Published by: National Bank of Belgium (NBB)
Participating institutions: NBB, Debt Agency (Federal Public Service Finance), Barclays Capital, BNP Paribas, Dexia Bank, Fortis Bank, Indosuez, ING, KBC Bank, UBS Warburg
Updated to: 23.09.2004 Next issue: Jan. 2005 Sources: NBB, unless stated
95.8
September 2004 No. 25
-3 -2 -1 0 1 2 3 4
-25 -20 -15 -10 -5 0 5
2001 2002 2003 2004
Smoothed data
Belgium Euro area
Sources: EC, NAI, NBB.
GDP GROWTH AND BUSINESS CYCLE INDICATOR
(e)
points p.c.
Business confidence indicator (right-hand scale)
Gross data
Year-on-year real GDP (percentage changes, left-hand scale):
HARMONISED CONSUMER PRICES (annual percentage changes)
Source: EC.
0 1 2 3 4
2001 2002 2003 2004
Belgium Euro area
The upswing of economic activity continued in the euro area, where the year-on-year growth accelerated to 2% in the second quarter of 2004. It was even stronger in Belgium, reaching 2.7%, with quarterly growth rates close to 0.7% for the last four quarters. The NBB's business survey indicator stabilised at a high level over recent months, indicating that the Belgian economy is likely to grow at a comparable pace in the near feature.
To a large extent, the strengthening is still accounted for by exports, stimulated by stronger foreign demand and the stabilisation of the euro exchange rate. Private consumption remained relatively firm in Belgium, but business investment still lags behind at the current juncture.
In view of the vigorous output growth figures released by the National Accounts Institute for the first half of 2004, the average forecast of the participating institutions for GDP growth for 2004 has been revised from 2.3% in June up to 2.5% in September. The same growth rate is expected for 2005. While domestic demand is assumed to consolidate in 2005, the international environment could prove slightly less supportive, owing to a gradual return to a more neutral policy stance, a. o. in the US, and to limited adverse effects stemming from persistent high oil prices.
After a temporary peak of 2.4% in May caused by unfavourable base effects and oil price increases, HICP inflation hovered around 2% in Belgium, while euro area inflation stabilised at 2.4%.
Belgian inflation is expected to stabilise slightly under 2% in line with the Eurosystem's objective. This favourable inflation outlook is supported by moderate wage increases, in a context of a slow pick- up in employment and still abundant spare capacity. Nonetheless, the recent oil prices movements have caused a slight upward revision of the average inflation forecast up to 1.9% in 2004 and 1.8% in 2005, from 1.8% and 1.7% in June.
SPECIAL TOPIC PUBLIC FINANCE
0.3
0.2 0.5 0.6 0.7
0.6 0.7 0.0 0.0 0.5
0.0 0.3 0.5 GENERAL GOVERNMENT BALANCE
(in p.c. of GDP)
2001 2002 2003 2004 2005 2006 2007
0.0
0.0 0.0
0.2 0.0 0.3
December 2000 November 2001 November 2002 November 2003 Outcome
Sources: Ministry of Finance, NAI, NBB and Prime News Consensus estimates.
*Beyond 2002: projections of the November 2003 stability programme.
Stability programme targets
-0.4e 0.6 0.1 0.3 -0.1e
In line with the growth forecasts, the average of primary dealers' forecasts for Belgian public finances was slightly revised. General government is expected to show a small deficit of 0.1% in 2004 and 0.4% in 2005. Public debt should decrease to 97.5% of GDP in 2004 and to 95.8% in 2005.
It should be stressed that some of the participants' forecasts include the effect of additional measures which may be taken by the government in drawing up the budget for 2005. Excluding this anticipated effect, the deficit forecast would have been higher.
SPECIAL TOPIC SPECIAL TOPIC: Belgium's recent growth performance
98 100 102 104 106
2001 2002 2003 2004
98 101 104 107 110 113 116
2001 2002 2003 2004
98 101 104 107 110
2001 2002 2003 2004
-4 -2 0 2 4 6
1992 1994 1996 1998 2000 2002 2004
GDP (year-on-year percentage changes)
GDP (indices, Q4 2001=100)
Export of goods and services
(indices, Q4 2001=100)
Domestic demand (indices, Q4 2001=100)
Euro area Belgium
Germany France Netherlands
Sources: EC, NAI.
While the Belgian economy usually evolves at a similar growth pace as the euro area, it has shown greater dynamism in the recent period. In particular, GDP quarterly growth has exceeded that of the euro area for 10 consecutive quarters since the end of 2001. The current protracted outperformance of the Belgian economy is noteworthy, as it can not be ascribed to a structural catching-up process with the Belgian economy situated in the core of the euro area.
Differences in cyclical position may amount for a temporary growth differential, but such an effect tends to disappear quickly. Actually, the Belgian business cycle has closely followed that of the euro area during the last decade, albeit with a higher amplitude (higher peaks and deeper troughs, see Special topic in BPN 23). After the considerable low in 2001, the initial recovery has been, as usual, more pronounced in Belgium than in the euro area. However, contrary to the usual pattern, the subsequent slackening from mid- 2002 to mid-2003 was milder in Belgium than in the euro area and the higher growth pace continued during the current upturn.
Looking at the various demand drivers for growth, it appears that foreign trade cannot explain the outperformance. As in neighbouring countries, exports of Belgium were hit by the weakness of foreign demand and by the appreciation of the euro until mid 2003. In particular, it suffered from the sluggishness of demand in the neighbouring countries, which on average represents 60% of Belgian exports.
Atypically, it seems that domestic demand fuelled the Belgian economy over the past two years. While domestic demand was lacklustre in the euro area, it proved to be relatively resilient in Belgium. In particular, private consumption made a substantial contribution to growth. Furthermore, business investment stabilised in Belgium, whereas it continued to decrease in the euro area.
Being country-specific by nature, the recent strength of domestic demand in Belgium with respect to the neighbouring countries seems to have been at least partly supported by the relative recent fiscal performances. In contrast with the neighbouring countries and despite the latest cyclical downturn, the public debt ratio has been showing a downward trend for the last ten years. Furthermore, a balanced or positive budget has been achieved each year since 2000, partly helped by non-recurring operations in 2003. This may have supported households' confidence regarding the sustainability of the public debt burden, thus, together with the gradual implementation of income tax cuts, sustaining consumption spending.
According to recent forecasts, it seems that growth in Belgium might again exceed the figure for the euro area as a whole in 2005.
However, the effect of the national factors should gradually fade away. Therefore, a sustained and substantial divergence is not very likely in the medium term, owing to the high degree of integration of Belgium with its neighbouring economies and the relatively comparable situation in terms of trends in labour force and productivity.
GOVERNMENT SECURITIES MARKET
-0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
2001 2002 2003 2004
Government bonds
3 3.5 4 4.5 5 5.5 6 6.5 7
2001 2002 2003 2004
DE US
BE
10-YEAR INTEREST RATES (percentage points, monthly averages)
Euro interest-rate swaps
BE NL FR
IT ES
Euro-area government bonds
Spreads vis-à-vis German Bund
Sources: BIS, Datastream.
The recovery of the long-term interest rates which started in April, came to an end in June. From then onwards, decreases of various magnitudes resulted in 10-year bond yields in Belgium, Germany and the United States returning to the levels recorded in the beginning of the second quarter. According to the respective movements in inflation-indexed and fixed-income bonds, these reductions were primarily due to from improving inflation prospects in July, whereas a decrease in real interest rates occurred in August.
Following the introduction of a new German benchmark, euro area government bond spreads vis-à-vis the German Bund declined somewhat in July, and remained stable in August. Concomitantly, the euro area interest-rate swap spread vis-à-vis the German Bund narrowed further, setting a record at 12 basis points in July.
Gross issues Net issues
S O N D J F M A M J J A S O N D J F M A M J J A -12
-9 -6 -3 0 3 6
Treasury bills OLO
PRIMARY MARKET (billions of euros)
S O N D J F M A M J J A S O N D J F M A M J J A -12
-9 -6 -3 0 3 6
2004
2002 2003 2002 2003 2004
III IV I II III IV I II III IV I II J-A 0
3 6 9 12 15
III IV I II III IV I II III IV I II J-A 0
0.5 1 1.5 2 2.5 3 3.5 4
7 10 13 16 19 22 25 28 31
Annual turnover ratio (right-hand scale)
Repos Repos (left-hand scale)
Treasury bills
Other (mainly outright, left-hand scale) Other (mainly outright) 2003
OLOs SECONDARY MARKET (billions of euros unless stated, daily averages)
2001 2002 2004 2001 2002 2003 2004
5.0
10.6 8.4 6.2
8.6
13.0 8.5
11.4 10.5
15.8 17.8 8.5
8.0
12.4 8.4
13.5 9.6
8.5 2.0
11.9 8.7 4.0
0 2 4 6 8 10 12 14 16 18 20 0 200 400 600 800 1000
Repos Other (mainly outright)
19.4 5.5
2.5 TREASURY BILLS
OLOs OUTSTANDING AMOUNTS AND TURNOVER
3-month 6-month 12-month
OLO 275 - 7.75% - 10/04 OLO 273 - 6.50% - 03/05 OLO 294 - 4.75% - 09/05 OLO 299 - var. % - 04/06 OLO 283 - 7.00% - 05/06 OLO 297 - 4.75% - 09/06 OLO 286 - 6.25% - 03/07 OLO 257 - 8.50% - 10/07 OLO 288 - 5.75% - 03/08 OLO 268 - 7.50% - 07/08 OLO 302 - 3.00% - 09/08 OLO 292 - 3.75% - 03/09 OLO 295 - 5.75% - 09/10 OLO 296 - 5.00% - 09/11 OLO 298 - 5.00% - 09/12 OLO 262 - 8.00% - 12/12 OLO 301 - 4.25% - 09/13 OLO 303 - 4.25% - 09/14 OLO 282 - 8.00% - 03/15 OLO 300 - 5.50% - 09/17 OLO 291 - 5.50% - 03/28 OLO 304 - 5.00% - 03/35
Outstanding amounts at 31 Aug. 2004
(billions of euros)
Turnover in August 2004
(millions of euros, daily averages)
357 440
678 229
862 609
179
525 621 586
904 516
583 376
384
580 558 291
1
448 429 125
TREASURY HIGHLIGHTS TREASURY HIGHLIGHTS
1. According to NBB data provided to the EC, the Maastricht debt-to-GDP ratio is expected to fall from to 100.7 % of GDP in 2003 to 97.4 % in 2004.
2. Pursuant to European directives, the national railway company ( NMBS / SNCB) will be restructured during the second half of the year.
A Royal Decree has paved the way for the debt transfer from the national railway company to the Fund for Railway Infrastructure (Fonds voor Spoorweginfrastructuur / Fonds de l’Infrastructure Ferroviaire), a public institution yet to be set up. A maximum of euro 7.4 billion will be transferred on January 1st 2005.
LIST OF CONTACT PERSONS LIST OF CONTACT PERSONS
PARTICIPATING INSTITUTIONS: TECHNICAL EDITORS: TELEPHONE: FAX:
Federal Public Service Finance Mr Stefan Theys 32 2 233 72 23 32 2 233 71 14
Barclays Capital Mr Jacques Nixon 33 1 44 58 32 26 33 1 44 58 32 58
BNP Paribas Mr Dominique Barbet 33 1 42 98 15 67 33 1 42 98 34 77
Dexia Bank Mr Jacques de Pover 32 2 222 44 71 32 2 222 33 76
Fortis Bank Ms Carine Brasseur 32 2 565 86 49 32 2 565 62 36
Indosuez Mr Frederic Pretet 33 1 41 89 64 37 33 1 41 89 40 08
ING Mr Peter Vanden Houte 32 2 547 80 09 32 2 547 80 63
KBC Bank Ms Elke Vermeulen 32 2 429 55 51 32 2 429 01 35
UBS Warburg Mr Stephane Deo 33 1 48 88 30 36 33 1 47 63 48 08
GENERAL INFORMATION
National Bank of Belgium Mr Luc Dresse 32 2 221 20 39 32 2 221 31 62
This publication is also available on the internet site www.nbb.be.
Information on the Belgian government debt can be found on the site of the Treasury: www.debtagency.be. General information on the Belgian government's action can be found on the site www.belgium.be.
