12.2% slump in economy is unprecedented, but smaller than expected

12.2% slump in economy is unprecedented, but smaller than expected
Rue Neuve in Brussels during the lockdown. © Dirk Waem, Belga

The Belgian economy shrank by 12.2% in the second quarter of this year, according to a flash estimate produced by the National Bank (NBB).

The figures for the second quarter, which was also 14.5% down on the second quarter of 2019, is being attributed to the effects of the coronavirus pandemic.

The nation had entered lockdown just two weeks earlier than the quarter began, and involved the closure of the entire horeca sector and most of the retail sector, as well as seeing many other businesses sending their employees to temporary unemployment and shutting up shop.

The extent of the economic shock can be seen from the quarterly changes since the beginning of 2018, which range from positive growth of between 0.1% and 0.8% all the way to the end of 2019.

Then, in the first quarter of 2019, the economy slips by 3.5% compared to the fourth quarter of 2019. And a flash estimate by the NBB at the end of April showed a fall of 3.9%.

But that is nothing to what happens in the whole quarter to end June.

The Bank stresses that its figures contain a degree of uncertainty because of the lack of data for June, but on the other hand it claims that data gathered from other sources allow it to conclude that “assumptions about the impact of covid-19 on economic activity in the various branches of activity have been made at a highly detailed level”.

During the period, consumption by households fell by 6.4%, and investment in housing by 5.4%.

In business, company investment fell by 3.6%, a sign of low confidence in the future. The added value in various sectors fell by 11.8% in services, 13% in manufacturing and 13.3% in construction.

The three-month drop in the economy has never been as large since the NBB started producing quarterly statistics in 1995, De Tijd reports. By comparison, the fourth quarter of 2008, at the height of the global financial crisis, saw the economy shrink by a little over 2%.

Nevertheless, the latest figure at 12.2% is better than had been predicted. Banks Belfius, ING and KBC had been predicting negative growth of between 15% and 18%, and BNP Paribas Fortis even predicted a calamitous shrinkage of 22.9%.

Economists expecting an economic downturn had expected the third quarter to see something of a reversal of the trend so far this year, as the lockdown was virtually lifted and the economy came back to cruising speed.

However the latest Covid-19 figures have cast a cloud over those expectations, and as new restrictions are placed on some sectors and extended to others like the events industry, that optimistic view might require a rethink.

Alan Hope

The Brussels Times

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