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Belgian Prime News
No. 75 March 2017
QUARTERLY PUBLICATION
Last update : 30 March 2017
Next issue: June 2017
•
Economic activity is expected to expand at a steady but moderate pace in Belgium and in the euro area.
According to the consensus forecast, Belgian GDP should grow by 1.4 % in 2017 and 1.5 % in 2018.
Fuelled by energy prices, HICP inflation Belgium is set to peak at 2.3 % in 2017, well above euro area
outcomes. It should come down to 1.8 % in 2018 (see Macroeconomic Developments).
•
Significant progress has been achieved recently in structural reforms. They should be complemented to
put Belgium on a stronger footing in a rapidly evolving environment (see Special Topic).
•
Since the beginning of the year, the Belgian Debt Agency has issued its new 10-year benchmark and two
additional 7-year and 40-year tranches. Together with an additional auction, it has completed 40 % of
its 2017 funding programme (see Treasury Highlights).
JJConsensus: Average of participants’ forecasts
2016
Belgium
Real GDP(1)
Euro area
1.2
Inflation (HICP)
Public debt(2)
1.7
Belgium
1.4
2018 p
Euro area
(1.3)
Belgium
1.6
(1.4)
Euro area
1.5
1.6
1.8
0.2
2.3
(1.9)
1.7
(1.3)
1.8
-2.8
-1.7
-2.3
(-2.2)
-1.6
(-1.7)
-2.1
-1.5
106.6
91.5
106.1
(106.1)
89.7
(89.9)
105.4
88.7
(1)
General government balance(2)
2017 p
1.4
Numbers in parentheses refer to the previous consensus forecast of January 2017.
(1) Percentage changes.
(2) EDP definition; percentages of GDP. Figures for 2016 are estimates. Real GDP growth
3
2
2
1
1
0
I
II
III
IV
I
2016
For 2017
Source: Belgian Prime News.
II
III
2017
IV
0
HICP inflation
I
II
III
2016
IV
I
II
III
IV
Belgian Prime News 3
No. 75 March 2017
SUCCESSIVE FORECASTS FOR BELGIUM
2017
For 2018
1
www.nbb.be
JJMacroeconomic Developments
Despite an unusual string of economic, political and security events in 2016, economic
activity in the euro area has proven resilient, with growth even accelerating a little
in the second half of the year and job creation gaining further momentum. Looking
ahead, uncertainty remains high, not least about the format for the UK’s exit from the
EU and the future economic policies of the US Administration; elections are coming
up in several large European countries, adding to policy uncertainty. Very favorable
conditions – low oil prices, a cheap euro – that have supported growth in the last few
years are now fading away and central banks will eventually start to withdraw from their
highly accommodative monetary policy stance, if the situation continues to improve and
inflation will converge in a sustainable manner towards the medium-term objective.
In Belgium, GDP growth edged up to 0.5%
in the final quarter of 2016, mainly driven
by domestic demand and, more particularly,
by business investment. The labour market
remains very healthy, continuing the upward
trend started in mid-2013. Job creation is
generalised across all branches, which may be
another sign, on top of the cyclical upswing,
that labour market policies are bearing fruit.
Even though the business and consumer
confidence indicators dropped back slightly in
the first quarter, they still point to a further
steady expansion of activity. According to
the consensus forecast, Belgian GDP is
expected to grow at a pace of 1.4 %
in 2017 and 1.5 % in 2018. In the euro
area, GDP should increase by 1.6% in 2017
and in 2018. The (limited) negative growth
gap with the euro area is mainly due to
fiscal consolidation measures that imply a
lower increase in public expenditure. Private
consumption growth, which has been curbed
in Belgium in recent years in a context
of wage moderation policies and several
tax hikes, is set to recover and gradually
catch up with the pace in the euro area.
Belgian Prime News No. 75 March 2017
2
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Mainly fuelled by rising energy prices, HICP
inflation peaked to 3.3 % in February in
Belgium, clearly above euro area standards.
Belgian inflation is forecast to reach
2.3 % on average in 2017 before slowing
down at 1.8 % in 2018. The stronger
inflation dynamics may be traced back to
the (structural) higher sensitivity of Belgian
inflation to oil prices and to the various
increases in indirect taxes. In addition,
services inflation remains persistently high,
despite the unprecedented wage moderation
policies implemented in recent times.
GDP GROWTH AND BUSINESS CYCLE INDICATOR
p.c.
4
points
10
Gross
data
3
0
Smoothed
data
2
-10
1
-20
0
-30
-1
-2
2012
2013
2014
2015
2016
2017
-40
Business confidence indicator (right-hand scale)
Year-on-year real GDP
(percentage changes, left-hand scale):
Euro area
Belgium
Sources: EC, NAI, NBB.
INFLATION (HICP)
(annual percentage changes)
5
4
3
2
1
0
-1
2012
2013
2014
2015
2016
2017
Belgium
Euro area
Source: EC.
Coming down from 2.8 % in 2016, the Belgian public sector deficit should work
out at 2.3 % in 2017 and 2.1 % in 2018. Some additional consolidation efforts would
thus be required to comply with the path set out in the budgetary plans submitted by the
Belgian authorities to the EC. The BPN participants anticipate slight inflexion in the Belgian
public sector debt, which should decline from 106.6 % of GDP in 2016 to 105.4 % in 2018.
JJSpecial Topic: Belgian economy on sounder foundations: major
progress achieved should be further consolidated
ECONOMC GROWTH AND JOB CREATION
(average annual growth in %)
Like the euro area, Belgium has faced a climate
of great economic uncertainty over the last
years, against the backdrop of a slowdown
in global trade, geopolitical uncertainty and
waves of uncertainty in the financial markets.
Even though Brexit has had little impact up to
now, Belgium has significant trade exposure
to the UK. Also, GDP growth was tested by the
repercussions of the terrorist attacks in Paris
in November 2015 and in the Brussels area on
22 March 2016. Nevertheless, growth proved
resilient overall. It came to 1.5 % in 2015
and 1.2 % in 2016, as economic activity was
temporarily weak at the beginning of the year.
3
2
1
0
2000-2007
2008-2013
2014
2015
2016 e
Employment
GDP
Sources: NAI, NBB.
Progress in the structural reforms is bearing fruit
As recognised by both the IMF and the European Commission in their recent country
reports, this resilience was at least partly supported by the progress made with the
structural reforms undertaken since 2011. Those reforms aim to limit the impact of adverse
economic conditions and to remedy the structural weaknesses of the Belgian economy.
In particular, the pension reform law enacted in 2011 and 2015, including measures
to tighten up the conditions for early retirement, have contributed to reduce the
number of labour market exits in the 55-plus bracket. Through their combined
effect of stronger potential output and lower ageing-related budgetary costs, those
reforms have significantly improved the long-term sustainability of public finances.
Measures have also been taken in the past two years to consolidate the wage moderation
efforts. They include the temporary suspension of indexation and the implementation
of the first stage of cuts in employers’ social security contributions embodied in the socalled tax shift. According to the Central Economic Council, the hourly wage gap that has
accumulated since 1996 compared to the three main neighbouring countries was closed
completely in 2016. The tax shift measures also comprise a reduction in the tax wedge on
labour income, focused on low wages, which reinforces the financial incentives to work.
STRUCTURAL REFORMS HAVE AN IMPACT ON ECONOMIC DEVELOPMENTS
Private sector's hourly labour cost
differential with neighbouring countries
(in % of the corresponding population
50
40
30
20
Three main neighbouring countries
Germany
France
Netherlands
2016 e
2014
2012
2010
2008
2006
2004
2002
2000
1998
10
0
2000
2015
50-54 year
2000
2015
55-59 year
2000
2015
60-64 year
Retired
Unemployed with employer top-up, not
seeking work
2000
2015
50-64 year
Belgian Prime News No. 75 March 2017
70
60
1996
20
15
10
5
0
-5
-10
-15
-20
Reduced early retirement from the
labour market among 50-64-year olds
(percentage differences compared with the three main
neighbouring countries, cumulative since 1996)
Older unemployed people not seeking work
Time credit and career breaks, full-time
Disabled
Sources : CEC, NBB.
3
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Together with the continuing recovery of economic activity, those measures have contributed to
strong job creation and a broad-based improvement in the labour market. Employment grew by
1.4 % in 2016 and unemployment declined across all categories of people: low-skilled, youth and
older-aged short-term as well long-term unemployed.
Looking forward, additional stages of the tax shift are to be phased in the next three years. The
law governing wage formation in Belgium has been amended with a view to preventing any new
divergences in wage levels from emerging vis-à-vis the three main neighbouring countries, and to
ensuring that wage-setting makes the maximum contribution to job creation. In January 2017, the
social partners concluded an interprofessional agreement in line with that; the maximum margin
for real wage increases beyond indexation is set at 1.1 % for 2017 and 2018 combined.
Consolidating the restored competitiveness and safeguarding the sustainability of public
finances
For the future, it is necessary to make every effort to consolidate Belgium’s restored competitiveness.
At the same time, progress must be achieved in fiscal consolidation. Finally, to foster potential
growth, the economic fabric needs to be made more productive, more dynamic and more inclusive.
Indeed, some developments such as the relatively high level of inflation in Belgium call for vigilance.
Despite the moderation of labour costs, inflation has risen from 0.6 % in 2015 to 1.8 % in 2016, a
level cleary higher than in the euro area (0.2%). That is due in part to the increase in indirect taxes
under the tax shift, and to price rises resulting from the fiscal consolidation efforts undertaken by
various governments. Together, those factors have driven up inflation by around 1 percentage point.
Furthermore, inflation in services has reached around 2 % in each of the past five years and has also
systematically outpaced services inflation in the three neighbouring countries. The working group
set up by the Minister of the Economy to determine the causes of the high inflation in services in
Belgium has identified specific issues in the telecoms sector and in restaurants. Wage-setting and
pricing therefore not only have their own roles to play in safeguarding competitiveness, they also
complement one another to a very considerable degree.
The reduction of the budget deficit stalled in 2016. Yet public finances benefited from a further
decline in interest charges. Continued control over expenditure was in fact thwarted by a number
of temporary factors and by the exceptional efforts made to combat terrorism and to accommodate
asylum-seekers. Together, these last two factors represented 0.2 % of GDP. Revenues declined
because of the reductions in taxes on labour which were only partly offset by an increase in other
taxes. The debt ratio rose to 106.6 % of GDP. Bringing down the public debt sufficiently quickly is
needed to provide the necessary buffers and scope to address the challenges ahead, particularly
in order to absorb the remaining costs of population ageing and safeguard social protection in the
long term.
In an environment marked by globalisation and technological change, strengthening productivity
growth at macroeconomic level entails more innovation, but also better dissemination of innovations
and a more fluid allocation of labour and capital. Investment in R&D in Belgium is heavily concentrated
on a small number of sectors and firms. Belgium has a low rate of both creation of new businesses
and destruction of existing ones, and the reallocation of resources here has appeared to be less a
source of productivity gains in recent years. In that regard, the low level of entrepreneurship is an
impediment, but the tide seems to have turned recently. More new businesses are starting up, and
more workers are adopting self-employed status. The fluidity of the reallocation process should
benefit from the elimination of unnecessary administrative, legal and fiscal barriers, an effective
and transparent regulatory framework, and efficient public administration.
Belgian Prime News No. 75 March 2017
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Despite improvement in the labour market, some people, particularly the less skilled, the young, and
residents from non-EU countries, face greater difficulty in gaining or maintaining a foothold in the
labour market. The action taken by the Regions and Communities should be reinforced to improve
education for vulnerable groups and provide improved technical and vocational education. Owing
to the extension of working life, it is also essential to invest in lifelong training.
Potential growth and productivity could also benefit from a more efficient infrastructure, especially
in mobility and energy supply. In this respect, a national plan for strategic investment has been
announced by the federal government and should be worked out with the involvement of the
regional entities.
Putting Belgium on a stronger footing
The work done recently to put Belgium on a stronger footing in view of structural challenges ahead
and to better withstand the shocks and uncertainties surrounding economic developments has
already started to bear fruit. However, all stakeholders should be mobilised to further establish
an environment based upon sound macroeconomic policies, sustainable fiscal prospects and an
efficient and flexible economy. Offering greater opportunities to everyone, in a dynamic and open
economy, is the best and only way to overcome the prevailing troubles and grasp the benefits of a
rapidly evolving world.
JJ Treasury Highlights
In January, Belgium started off its € 39.25 billion long-term funding programme with the traditional
launch of its new 10-year benchmark. The € 6 billion OLO 81 – 0.80 % 22/06/2027 – was issued on
17 January 2017 at a spread of MS+10bps. For the first time ever, Belgium was able to issue € 6 billion
of its 10-year benchmark, with a fine geographical distribution and a book size of almost € 21.5 billion.
Besides the new 10-year benchmark, Belgium also organised a dual-tranche issue in February, comprising
new 7-year and 40-year lines.
The new € 3 billion OLO 82, due 22 October 2024, pays an annual coupon of 0.50 % and was priced
at a flat spread against the interpolated mid-swap reference rate, implying a reoffer yield of 0.508 %.
The new € 3 billion OLO 83, due 22 June 2057, pays an annual coupon of 2.25 % and was priced at a
spread of +87bps against the interpolated mid-swap reference rate, implying a reoffer yield of 2.228 %.
Distribution of the new OLO at issuance
Distribution by investors
Geographical distribution
OLO 81 (0.80% - 22.06.2027)
2%
17%
7%
1%
8%
19%
6%
25%
25%
29%
43%
6%
12%
OLO 82 (0.50% - 22.10.2024)
2% 1%
0%
8%
18%
15%
10%
34%
27%
40%
24%
8%
13%
OLO 83 (2.25% - 22.06.2057)
10%
2%
6%
7%
3%
9%
18%
19%
17%
57%
10%
10%
32%
Bank
Belgian Prime News No. 75 March 2017
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Americas
Bank Treasuries
Asia
Central Banks & Public Entities
EU - non euro
Fund Managers
Europe - non EU
Hedge Funds
EU - euro (excl. BEL)
Insurance Companies
Belgium
Pension Funds
Source: Belgian Debt Agency.
The auctions scheduled for 23 January and 20 February were cancelled.
Moreover the Treasury has issued € 4 billion through the auction of 20 March, tapping the OLO 81
(2027), OLO 76 (2038) and OLO 60 (2041).
So far, there have been no EMTN or Schuldscheine issues.
Belgium has therefore already issued € 16.0 billion, corresponding to 40.9 % of its € 39.25 billion
funding target.
In terms of portfolio structure, the average life of the portfolio is now 9.15 years (end-February) and
it has an implicit yield of 2.53 %.
JJGovernment Securities Market
10-YEAR INTEREST RATES
(percentage points, monthly averages)
5
Government bonds
Spreads vis-à-vis German Bund
6
4
5
3
4
2
3
1
2
0
1
-1
2012
2013
BE
2014
DE
2015
2016
2012
2017
2013
2014
0
2015
2016
2017
Euro interest rate swaps
US
Euro area government bonds
IT
BE
ES
NL
FR
Sources: BIS, Datastream.
Average over the first 20 days for March 2017.
Between December 2016 and mid-March 2017, long-term sovereign bond yields continued to increase
in the euro area, albeit at a slower pace than in the previous months. However, developments
were heterogeneous across the euro area. Ten-year yields increased by 9 bp in Germany, to reach
0.34 % on average in March, while they rose by 25 bp in Belgium, to 0.87 %. In the US, ten-year
yields remained relatively stable; edging up by a mild 4 bp to 2.53 % despite the FOMC’s decision to
raise the target range for the federal fund rates to 0.75% - 1%.
Over the period under review, long-term euro area sovereign spreads vis-à-vis Germany remained
relatively stable in some countries, such as Austria, Finland and the Netherlands, whereas they
continued to widen in other countries, especially those with relatively low ratings, mainly as a result
of political uncertainty. In France, the ten year spread increased by 18 bp reaching 68 bp in March
in the context of the upcoming presidential election. In Italy and Spain, ten-year spreads increased
by respectively 41 bp and 22 bp to stand at 205 bp and 141 bp in March. In Belgium, the ten-year
spread rose by 16 bp to 52 bp in March. Over the review period as a whole, sovereign bond yields
showed some volatility.
PRIMARY MARKET
(billions of euros)
Belgian Prime News No. 75 March 2017
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
Net issues
M A M J J A S O N D J F M A M J J A S O N D J F
2015
6
www.nbb.be
2016
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
2017
Treasury bills
Gross issues
M A M J J A S O N D J F M A M J J A S O N D J F
2015
OLOs
2016
2017
SECONDARY MARKET TURNOVER
(As reported by primary and recognised dealers to the Treasury, billions of euros)
90
Treasury bills
OLOs
50
80
40
70
60
30
50
40
20
30
20
10
10
0
0
2014
2015
2016
2014
2017
2015
2016
2017
Customer
Inter-dealer1
¹ Please note that inter-dealer turnover is double-counted in these figures.
OUTSTANDING AMOUNTS AND TURNOVER
(billions of euros)
TREASURY BILLS
Nominal outstanding amounts at end of February 2017
2.5
3-month
4.6
6-month
18.6
0
5
10
15
20
12-month
25
OLOs
Outstanding amounts at end of February 2017
11,9
12,2
12,7
14,1
13,7
3,0
16,9
19,5
16,2
15,9
3,0
9,7
7,7
6,1
16,5
14,4
19,3
10,2
8,2
19,6
6,5
5,7
3,0
3,0
5
17,2
9,7
10
Source: Belgian Debt Agency.
15
20
25
0,2
0,0
0,8
0,4
0,5
0,7
1,1
1,2
0,7
1,2
1,1
1,2
0,9
1,8
2,0
0,9
0,8
0
1
2,9
1,4
1,6
4,7
0,6
0,9
0,6
0,6
0,9
0,7
No. 75 March 2017
11,4
2,5
0
OLO49 2007/2017
OLO63 2011/2017
OLO40 2002/2017
OLO52 2008/2018
OLO70 2013/2018
OLO69 2013/2018
OLO55 2009/2019
OLO67 2012/2019
OLO58 2010/2020
OLO61 2011/2021
OLO48 2006/2022
OLO65 2012/2022
OLO68 2013/2023
OLO79 2016/2023
OLO72 2014/2024
OLO82 2017/2024
OLO74 2014/2025
OLO64 2011/2026
OLO77 2016/2026
OLO81 2017/2027
OLO31 1998/2028
OLO75 2015/2031
OLO66 2012/2032
OLO73 2014/2034
OLO44 2004/2035
OLO76 2015/2038
OLO60 2010/2041
OLO71 2013/2045
OLO78 2016/2047
OLO83 2017/2057
OLO80 2016/2066
9,7
Belgian Prime News 8,2
7,1
Outright turnover in February 2017
5,7
1,9
1,6
1,9
2
3
4
5
6
7
7
www.nbb.be
BEST BID/OFFER SPREADS1
6
Treasury bills
(basis points)
120
5
100
4
80
3
60
2
40
1
20
OLOs
(ticks)
0
0
2015
2016
2015
2017
2016
2017
Average spread on all T-bills
5-year benchmark (OLO56 - OLO59 as of 03/01/2011)
Best spread
10-year benchmark (OLO55 - OLO58 as of 13/01/2010 OLO61 as of 19/01/2011)
Average spread on assigned T-bills
30-year benchmark (OLO44 - OLO60 as of 15/04/2010)
Source: Treasury.
1
As reported by three electronic platforms (MTS, Broker Tec and BGC eSpeed).
JJList of contact persons
Belgian Prime News No. 75 March 2017
8
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PARTICIPATING INSTITUTIONS
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TECHNICAL EDITORS
Mr Jean Deboutte
Mr François Cabau
Mrs Apolline Menut
Mr Geert Gielens
Mr Catherine Danse
Mr Philippe Gijsels
Mr Arne Maes
Mr Louis Harreau
Mr Ludovic Martin
Mr Guillaume Menuet
Mr Olivier Vigna
Mr Peter Vanden Houte
Mr Philippe Ledent
Mr Piet Lammens
Mr Jan Van Hove
Mr Cyril Regnat
Mr Daniele Antonucci
Mrs Oriane Parmentier
Mr Charles St-Arnaud
Mrs Anna Titareva
Mr Michel Martinez
Mr Yvan Mamalet
TELEPHONE
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+44 20 31 34 35 92
+32 2 222 70 84
+32 2 222 71 13
+32 2 565 16 37
+32 2 312 12 10
+33 1 43 23 39 37
+44 20 7986 3281
+32 2 547 80 09
+32 2 547 31 61
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+32 2 429 59 50
+33 1 58 55 82 20
+44 20 7425 8943
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GENERAL INFORMATION
National Bank of Belgium
Mr Luc Dresse
+32 2 221 20 39
[email protected]
Published by : National Bank of Belgium (NBB).
Sources: NBB, unless otherwise stated.
This publication is also available on the internet site www.nbb.be.
Information on the Belgian government debt can be found on the Treasury website : www.debtagency.be.
General information on the Belgian government’s action can be found on the website www.belgium.be.