Macroeconomics: Country report Belgium

Topics: Tax, Economics, Unemployment Pages: 9 (2285 words) Published: October 19, 2013


Country Report: Belgium

Assignment:
Global Macroeconomics and Business Environment

1. Executive Summary
The purpose of this paper is to give a brief presentation of the current situation of the Belgian economy, its challenges and prospects and to recommend policies to tackle these challenges.
The Belgian economy is stumbling. Belgium almost entered into a recession in 2012 and the GDP trend is negative. Consumer spending is low. Government spending and investment spending are decreasing. Trade balance is decreasing but positive. However, Belgium is rapidly losing market share. Both consumer and business confidence are low. Unemployment rate is relatively low.

The Belgian economy faces several challenges. Debt rate has increased again and is now about 100% of the GDP. Budget deficit is at 2.9%. The government is spending about 55% of the GDP, mainly on transfers and wages for government employees. Overall employment rate is very low but the employment rate in the public sector is very high. The tax rate is also very high, making it difficult for the government to increase revenue.

The demand side policy I recommend to fine-tune the economy is to implement a discretionary fiscal policy with a decrease in direct taxes in order to increase consumer spending and investments. The supply side policies I recommend to obtain long term growth are reformation of trade unions, reduce taxation and improve the flexibility of the labour market.

2. The Current State of the Economy
Real GDP
The outbreak of the economic crisis pushed Belgium into a recession with three quarters of negative growth starting in the 3rd quarter of 2008. In the 2nd quarter 2009 raise started to expand again and this lasted until the last quarter 2011 when the GDP shrunk with 0.1%. In 2012 the GDP changed with 0.2% in Q1, -0.5% in Q2, 0% in Q3 and 0.1% Q4. Belgium just avoided a recession in 2012, but only because of the stagnation during the 3rd quarter. (Fig.1). The GDP growth maintains the negative trend in the near future, as indicated by the leading indicator of the National Bank (Fig.2).

Consumer Spending
Consumer spending entered a downward trend in Q4 2010 when it started to decrease with 1.3% from 47,455 M€ to 46,853M€ in Q2 2012. Spending increased only marginally in the 3rd quarter of 2012 with 26M€, not enough to break the negative trend. (Fig.3). Consumer confidence (-23 in January 2013) is still at a very low level (fig 4.). With more than 200 B€ (56% of GDP) parked on regulated savings accounts 1, savings are record high. It is obvious that consumers are worried about the near future and choose to save instead of spending.

Government Spending
Government spending increased 0.7% on average per quarter from Q1 2007 till Q4 2008 but then growth start slowing down. In 2012 expenditure decreased from 21,794 M€ in the 1st quarter to 21,768 M€ in Q3. (Fig.5). The government doesn’t have much possibility to increase spending as the national debt is hovering at 100% of the GDP and the budgetary deficit was 2.9% in 2012 2, in line with the Mastricht criteria. Furthermore, the government is committed to cutting its deficit to 0.6% in 2015 3.

Investment Spending
Investment spending declined 0.7% in the Q2 and 0.3% to 18,414 M€ in Q3 2012. Compared to the 1st quarter of 2008 when spending was 19,970 M€, investment spending was 7.8% lower in the 3rd quarter of 2012 (Fig. 6). As mentioned before, savings in 2012 are at a record high of 52% of the GDP; yet investments are low. The reason for this is probably the fact that business confidence, like consumer confidence, is very low. The trend is downwards since half 2010. It decreased from -11.8% in December 2012 to -13.20 in January 2013. (Fig.7).

Trade Flows
Belgium is a highly open economy with an export-to- GDP ratio of more than 80%. Its exports are highly concentrated with 75% accounted for by the European Union (EU), of which go...

References: 4. Interministerial Conference on Finance and Budget, “BELGIUM 'S STABILITY PROGRAMME (2012-2015)”, 30 April 2012.
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