Preliminary data reveal that Belgium's GDP contracted 0.2% quarter-on-quarter (q/q) in the fourth quarter of 2011, following a decline of 0.1% q/q in the third.
IHS Global Insight Perspective | |
Significance | Preliminary data indicate that economic activity in Belgium deteriorated further in the final quarter of 2011, putting the economy into technical recession. |
Implications | The data revealed that GDP expanded 1.9% in 2011 as a whole, but it declined 0.2% q/q in Q4, and it was up 0.9% y/y. |
Outlook | IHS Global Insight expects Belgium's economy to contract again in the near term, in line with our expectations of a recession in the Eurozone. |
Preliminary data revealed that Belgium's overall economic activity deteriorated further in the fourth quarter, taking the economy into technical recession.
According to preliminary data by the Belgian National Bank, Belgium's economy contracted a seasonally adjusted 0.2% quarter-on-quarter (q/q) in the final quarter of 2011, following a decline of 0.1% q/q in the third quarter and increases of 0.9% q/q and 0.3% q/q in the first and second quarters of the year, respectively. Real GDP was up only 0.9% year-on-year (y/y) in the final quarter of 2011 down from increases of 1.6% y/y in the third quarter, 2.1% y/y in the second and 2.9% y/y in the first. This takes GDP growth in 2011 to a preliminary 1.9%, down from 2.3% in 2010 as a whole. Previously, Belgium's economy suffered from a year-long recession that saw real GDP contract 2.7% in 2009 as a whole.
There are no breakdowns of data or any other details for the GDP in the final quarter of the year. However, data for the previous quarters showed that construction and manufacturing declined over the third quarter, following expansion in the first half of the year. We expect this to have remained the case in the final quarter of 2011. Specifically, construction declined 0.8% q/q in the third quarter—the first quarterly decline since the first quarter of 2010. Furthermore, the industrial sector declined 0.3% q/q in the third quarter—the first quarterly decline since the final quarter of 2009. Finally, the services sector, the largest sector of the economy, stagnated in the third quarter following five uninterrupted quarterly expansions.
The breakdown of data showed declines for private consumption, fixed investment, exports and imports, while public sector was the only component to show an increase in spending. Specifically, fixed investment declined 0.6% q/q and were up 4.3% y/y in the third quarter, having increased 2.7% q/q and 6.4% y/y in the second quarter. The decline in total investment was entirely due to falling business investment, while government investment continued to increase. In particular, investments in residential construction declined 1.5% q/q – the third consecutive quarterly decline.
Both exports and imports fell during this quarter. Indeed, exports of goods and services declined 0.9% q/q in the third quarter, while imports fell 0.2% q/q. This was the second consecutive quarterly decline for both exports and imports. As a result, their annual growth rate of expansion slowed markedly. Specifically, exports were up 2.9% y/y in the third quarter, slowing from 5.6% y/y in the second and 10.1% y/y in the first. On the other hand, imports increased 4.8% y/y in the third quarter, also slowing from 6.3% y/y in the second and 9.8% y/y in the first.
Disappointingly, private consumption contracted 0.1% q/q in the third quarter, reversing a 0.1% q/q expansion in the previous quarter of the year. As a result, it was up a modest 0.7% y/y—the smallest annual increase in the past nine quarters. In the meantime, public consumption increased at an accelerating pace of 0.6% q/q and was up 0.9% y/y—the best performance in the past two years.
Outlook and Implications
This latest data pointed to further deterioration in Belgium's economic activity in the last quarter of 2011 and indeed it marks the start of a technical recession. IHS Global Insight expects further contraction of economic activity during the first quarter of 2012. Our view is supported by recent readings of several forward-looking indicators. For example, the National Bank of Belgium's leading indicator sank to a two-year low in November 2011, despite edging up marginally in December-January, and it is now well below its long-term average. The consumer confidence index has also fallen into negative territory and indeed sank to a 2.5-year low at the start of 2012. The recent sovereign credit crisis in Europe, the increased financial market volatility, the ongoing muted consumer credit conditions, and the expected tightening of fiscal policy in the coming years, are all expected to restrict growth in the near and medium terms. Near-term growth could also be negatively affected by the unstable political situation in Belgium. Overall, IHS Global Insight now expects Belgium's GDP to contract 0.5% in 2012, following the increase of 1.9% in 2011.