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KBC lowers Belgian growth forecast

As a result of increasing international uncertainty and the increased risks related to Brexit, KBC is lowering its growth forecast for Belgium in 2019 from 1.4 percent to 1.2 percent. For 2020, the bank expects growth of only 1.1 percent. The economic climate in the eurozone has been deteriorating for some time. This is evident from various  indicators such as business and consumer confidence. Entrepreneurs’ confidence continues to fall across Europe. Consumer confidence also weakened in December 2018. KBC believes that a significant sluggishness in growth is inevitable for a number of European countries, particularly France and Italy.

The bank also believes that the economic indicators will not improve in the coming months. Apprehension about the protests of the yellow jackets in France and uncertainty about Brexit will continue to hit confidence in growth in the coming months. Statistics also offer little comfort, as industrial production in the four largest economies (Germany, France, Italy and Spain) slumped in November.

Belgian industry, which is tied at the hip with Germany, slowed at the end of 2018. This downward trend in production is nothing new and has been occurring since mid-2017. Other indicators for the Belgian economy also point south. Consumer confidence is at its lowest point in two years, companies expect a further slowdown in export orders and the willingness to invest seems to have passed its peak.

The main reason for an expected reduction in growth is the declining international economic environment, which leads to weaker export growth. However, domestic consumer demand seems to support growth. Although consumer confidence is relatively low, the ‘hard’ determinants of consumption are in good shape. For example, the real disposable household income is expected to increase by 2.2 percent in 2019, a considerable increase.

In addition, employment growth is expected to continue and wage growth to accelerate, partly due to the tight labour market. The KBC economists also assume that the tax shift will stimulate income growth in 2019 and inflation will hit 1.8 percent.

Arthur Rubinstein
The Brussels Times