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ECONOMIC OUTLOOK

« Including THE LATEST FIGURES FROM NBB REPORT 2016 »

2017 & BEYOND « POSITIVE LABOUR MARKET CONDITIONS LIKELY TO STRENGTHEN THE ACTIVITIES OF

FEDERGON MEMBERS » February 2017


ECONOMIC OUTLOOK ‘2017’ WORLD ECONOMY

THE UNITED STATES REMAIN THE GROWTH ENGINE; A REBALANCING OF CHINA’S ECONOMY WITH TREND GROWTH RATES THAT, WHILE LOWER THAN THOSE OF THE PAST TWO DECADES, REMAIN HIGH; POSITIVE SIGNS COMING FROM EUROPE; TRUMP, BREXIT, UPCOMING ELECTIONS IN EUROPE, … CREATE WAVE OF UNCERTAINTY

BELGIAN ECONOMY

CONTINUING GDP-GROWTH RISING CONFIDENCE INDICATORS INCREASED DYNAMICS ON THE LABOUR MARKET

CONCLUDING REMARKS FOR FEDERGON MEMBERS


WORLD ECONOMY


MODERATE PREDICTIONS FOR GLOBAL GROWTH IMF in its most recent study: “Global growth is projected to slow to 3.1 percent in 2016 before recovering to 3.4 percent in 2017.”

Realised & estimated economic growth (in %) (IMF – October 2016) USA Euro Area Japan UK Russia China India

World

2015 2.6 2.0 1.2 2.2 -3.7 6.9 7.6

3.2

2016 1.6 1.7 0.9 2.0 -0.8 6.7 7.6

3.1

2017 2.2 1.5 0.6 1.1 1.1 6.2 7.6

3.4


UNITED STATES WORLD’S LEADING ECONOMY HAS A NEW CAPTAIN TRUMP’S INTENTIONS (1): investments in the infrastructure and tax incentives for companies and households. TRUMP’S INTENTIONS (2): is he going to impose restrictions on international trade and cancel free trade agreements? He pulled the United States already out of the Trans-Pacific Partnership (a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States (until January 23, 2017) and Vietnam). He announced he'd start to renegotiate the North American Free Trade Agreement (NAFTA). What will be the effects of this policy mix: more jobs or more inflation? MEANWHILE: both business confidence (industrial companies, service sector, building industry, SME’s) and consumer confidence are booming. This suggests that the American economy will move up a gear in the coming quarters. IMPORTANT CONDITIONS FOR THE FEDERAL RESERVE TO CONSIDER A RISE OF THE INTEREST RATES 2% INFLATION-TARGET: American Federal Reserve is convinced inflation will reach the 2% objective in the medium term: There is increasing evidence that wage growth will speed up. The unemployment rate has fallen under the long-term average.

GDP Growth:

+1.9% (Q4 yoy)


CHINA CHINA’S ECONOMY HAS SOME PROBLEMS TO SOLVE China’s economy is heading towards a more difficult year. Credit growth (real estate market) is excessive and must be tackled. While the volume of newly granted loans to companies (excluding financial corporations) declined by nearly 20% ($ 185 billion) in 2016, mortgage loans soared up to $ 380 billion (+ 86%). Due to the expected return to more protectionist policies in the US, China must rely on domestic components to sustain the growth. Anyway such a shift towards a more domestic-oriented model is already underway. Growth reached the 6,5% target in the last quarter. Yet the trend is on a downward path. But it is important, both for the country itself and for the rest of the world, that growth should continue in the coming years. China will do its utmost to deliver good performance in 2017 because the quinquennial Congress of the Party is scheduled for the fall.

GDP Growth:

+6.8% (Q4 yoy)


EUROPE EUROPEAN GROWTH FIGURES ARE MODERATELY POSITIVE GDP-growth in the Eurozone reached +1.7% in 2016. Both private consumption and public consumption rose (respectively +1.6% and +2% in Q3), and fixed investment also expanded (+3% in Q3). Meanwhile, exports rose by 2.2 percent and imports increased by a faster 2.9 percent. The 1,7% GDP-growth is the result of diverging growth figures in the Member States (Y/Y-1) Greece Italy Belgium France Austria Netherlan‌ Germany Spain Ireland

-0,3

0,7

1,2 1,3

1,5

1,7

1,9

3,2

4,1

Positive factors: cheap oil (still), a competitive euro, low interest rates (still), an active Central Bank & a strong domestic market (Consumption & Investment). ELECTIONS: THE BIG QUESTION MARK What will be the influence of the outcome of the elections in France, the Netherlands, Germany and Italy?


UNITED KINGDOM & EU AFTER THE BREXIT

UNCERTAINTY STILL PREVAILS & WILL PREVAIL FOR YEARS TO COME

WHAT DO WE KNOW NOW? Theresa May confirms: Britain is heading for Brexit Max. But each divorce has two parties… The unexpected outcome of the referendum has had little effect on the economic growth so far. POLITICS What about Scotland? Is Scotland heading for another independence referendum? What will happen in Ireland, where the open border between North and South will now become the land border between Britain and the EU? What will happen to the workers out of the EU? Brexit does really mean Brexit. ... THE ECONOMY

Britain will leave the single market and the customs union, and will thus be able to negotiate its own trade deals with third-party economies. Britain wants this all wrapped up within the two years permitted by Article 50. The exit process will be launched by the end of March. Britain wants a comprehensive free-trade agreement (FTA) based on the one recently signed between the EU and Canada; but where “CETA” took about seven years to negotiate, Mrs May has permitted herself two. Up to now: the Brexit referendum has had little impact on Belgian growth so far


CONSEQUENCES OF THE BREXIT The British Recruitment & Employment Confederation (REC) responding to the speech by Theresa May on January 17, 2017 “The government’s plan risks putting the jobs market in reverse by leaving the single market and curtailing access to workers from the EU.” “We must not underestimate the vital role that EU workers play across the economy. We need more nurses to care for our ageing population, more people with the skills to build houses, and seasonal workers to ensure that farmers can continue to deliver for British customers. The reality is that we have near-full employment; the idea that there are hundreds of thousands of UK nationals waiting in the wings to take these jobs is a fantasy.” “Instead of recognising this, the Prime Minister propagated the myth that immigration has had a negative impact on pay in the UK.” “We call on the government to think through the proposed changes to immigration before it damages the jobs market and the future prosperity of the UK, and we are ready to work with government to help find solutions.”

Some figures about the interaction between Belgian and British economy  The British demand accounts for 2.9 % of the Belgian GDP  The UK is the 4th largest trading partner of Belgium  For Belgium only 4% of bank claims (on a consolidated basis) involve a British counterparty  8% of the Belgian exports go to the UK  The British market is relatively significant for Belgian exports in various textile (e.g. carpets, fabrics, wool) and food products. For a number of these products, the British market accounts for 20% and over of the exports.  The British demand creates added value chiefly in the chemical industry, tourism and financial & business services.  And we repeat: the Brexit referendum has had little impact on Belgian growth so far! (Source: Federation of Enterprises in Belgium)


RISING OIL PRICES WHAT AND WHY? After hitting a 10-year low in January 2016, oil prices rallied by 50 percent, to $56 in December, mostly due to involuntary production outages that brought balance to the oil market and due to an OPEC deal to cut production. If oil prices continue to rise, American shale producers will ramp up output, in effect stabilising the oil price. From a historical point of view, oil prices are still low compared to the last 10 years. LOWER OIL PRICES DAMP INFLATION EXPECTATIONS Both in the short and the mid-term inflation will remain low due to modest oil prices.


‘NEW’ RISKS FOR THE WORLD ECONOMY Trade agreements long in place are now potentially up for renegotiation. Arrangements that have shaped how businesses organize their production and hiring, sourcing of raw materials and financing, and distribution channels across borders. An increase in protectionism results not only in a collapse in trade flows, but also in a sharp decline in global output. Concerns about the impact of foreign competition on jobs and wages in a context of weak economic growth have enhanced the appeal of protectionist policy platforms, with potential complications for global trade flows. Hardening political divisions within countries can make solutions to structural challenges even more elusive. A range of additional factors continues to influence the outlook in various regions: the drought in eastern and southern Africa; civil war and domestic conflict in parts of the Middle East and Africa; the unfolding migrant situation in Jordan, Lebanon, Turkey, and Europe; multiple acts of terror worldwide, …

WITH THE SEEMING BACKLASH AGAINST GLOBAL TRADE IN ADVANCED ECONOMIES, THERE IS A PRESSING NEED FOR POLICYMAKERS TO REFOCUS THE DISCUSSION TOWARD THE BENEFITS OF INTEGRATION AND TO ENSURE THAT THOSE WHO BEAR THE BRUNT OF THE ADJUSTMENT COSTS IN AN OPEN TRADING SYSTEM ARE ADEQUATELY SUPPORTED THROUGH WELL-TARGETED SOCIAL INITIATIVES


BELGIUM Improving economic indicators


BELGIAN ECONOMY 15TH CONSECUTIVE QUARTER OF POSITIVE GROWTH (SINCE Q2 2013) +0.4% in fourth quarter 2016 (Q/Q-1) +0.2% in third quarter 2016 (Q/Q-1) +0.5% in second quarter 2016 (Q/Q-1) 2016 (year-on-year): +1.2% PREDICTIONS? The economic growth should pick up to 1.4% in 2017 and to 1.6% in 2018 (on a year-on-year basis). The FEB (Federation of Enterprises in Belgium) expects a growth of 1.7% for 2017. WHAT ARE THE MAIN DRIVERS OF THE ECONOMIC GROWTH? Growth will be driven by domestic demand in the coming years. In the next three years the contribution of domestic demand to growth will remain stable at around 1.5 percentage points. Increasing domestic demand is due to higher labour income and lower personal income taxes (resulting from the tax shift operation), but also to the strong rise in dividends, meaning that for the first time in a long time income from capital makes a positive contribution to income growth.

Source: NBB


INCREASING INFLATION RATE CLOSING UP TO THE 2% ECB-TARGET IMPACT ON WAGES?

INFLATION PROJECTIONS JANUARY ’17

The pivotal index is likely to be crossed in May 2017

Based on the assumption of a small rise in oil prices in 2017

PREDICTIONS?

(Federal Planning Bureau)

On the basis of the monthly inflation forecasts, average consumer price inflation should be 2.1% in 2017, compared to 1.97% in 2016 and 0.56% in 2015. The average growth rate of the so-called "health price index", used for the indexation of wages, social benefits and houserent, should be 1.7% in 2017, compared to 2.09% in 2016 and 1.05% in 2015.

GOOD TO KNOW! Belgium is an exception in the Eurozone. All in all, the inflation differential with the rest of the Eurozone should decline but remain

3,00 2,80 2,60 2,40 2,20 % 2,00 1,80 1,60 1,40 1,20 1,00

positive. A commission is exploring the further causes of higher inflation in Belgium. consumption index

health index

Source: Federal Planning Bureau


1 | 2017

10 | 2016

7 | 2016

4 | 2016

1 | 2016

10 | 2015

7 | 2015

4 | 2015

1 | 2015

10 | 2014

7 | 2014

4 | 2014

1 | 2014

10 | 2013

7 | 2013

4 | 2013

1 | 2013

10 | 2012

7 | 2012

4 | 2012

1 | 2012

10 | 2011

7 | 2011

4 | 2011

1 | 2011

5

10 | 2010

10

7 | 2010

4 | 2010

1 | 2010

10 | 2009

7 | 2009

4 | 2009

1 | 2009

10 | 2008

7 | 2008

4 | 2008

1 | 2008

10 | 2007

7 | 2007

4 | 2007

1 | 2007

CONFIDENCE INDICATORS CONSUMER & BUSINESS CONFIDENCE STABILISED IN 2016

15

Consumentenvertrouwen | La confiance des consommateurs | Consumer Confidence Ondernemersvertrouwen | La confiance des chefs d'entreprise | Business Confidence

0

-5

-10

-15

-20

-25

-30

-35

Source: NBB


THE BELGIAN ECONOMY GREW MODERATELY IN 2016, BUT CREATED MANY JOBS Measures aimed at reducing labour costs make economic growth more labour intensive  The labour market continues to pick up sharply, and the employment growth in 2016 was even slightly stronger than expected (+59 000 jobs).  In the opinion of the National Bank, there is little doubt that this growth is fueled by the recent policy measures aimed at wage moderation and by some structural reforms of the labour market.  This is also reflected in the fact that growth is much more labour intensive than previously.  The proportion between employment growth and business activity growth will gradually return to a level closer to historical averages.  Yet, over 120.000 additional jobs should be created between 2017 and 2019.

Source: NBB


GROWING IMPACT OF THE GOVERNMENT’S WAGE MODERATION POLICY The Belgian Government made efforts to rein in the cost of labour Apparently, our labour cost is not growing as fast as in our neighbour countries

Labour cost index % change Q/Q-4 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0

2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 Euro area (19 countries) EU (28 countries) France Netherlands

2015Q2

2015Q3 2015Q4 Belgium United Kingdom

2016Q1 2016Q2 Germany

2016Q3

Source: Eurostat


THE BELGIAN ECONOMY GREW MODERATELY IN 2016, BUT CREATED MANY JOBS Our population is growing (fast)  Between 1999 and 2014, the Belgian population grew by 1 million people (i.e. 0.61% per year compared to 0.37% per year in the Eurozone).  Despite the favourable evolution observed in the labour market, the employment rate target of 73.2% by 2020 set for Belgium remains out of reach (67,2% in 2016).  The unemployment rate declined to 7.6% which is yet slightly higher than before the Great Recession. The salaried employment has once again increased during 2016. Job creation outstrips the job losses announced! The favourable trend in the labour market is first of all boosted by the commercial services sector. The regression of employment in ‘Industry and Construction’ has come to a standstill. The employment in the non-commercial services shows a moderate increase.

Source: NBB


SMALL BUT CONTINUING EMPLOYMENT GROWTH: 0,5% 0,4%

0,4%

Science, tech & administration

1,28%

0,3% 0,3% 0,2% 0,3%

0,3%

0,51%

Entertainment and recreation Wholesale and retail trade, transport

2016Q3

2016Q1

2015Q3

Construction 2015Q1

0,53%

Human health and social work

0,2%

0,2%

0,76%

Information and communication

0,1% 2014Q3

2014Q1

0,1% 0,1% 0,1%

2012Q3 0,0% -0,1% -0,2% 2013Q1 -0,2% 2013Q3

2012Q1

2011Q1

2010Q3

2011Q3

0,1% 0,1% 0,1%

0,2% 0,1% 2010Q1

2009Q3 -0,1%

-0,3% -0,3%

2009Q1

0,0% 2008Q3

2008Q1

Employment growth Q3 2016 (Q/(Q-1))

Real estate

0,2%

0,3%

0,3%

0,4%

0,4%

0,5%

Employment (total growth (Q/(Q-1))

0,4%

0,5%

THE LABOUR INTENSITY OF GROWTH HAS RISEN

Industry

0,49% 0,31% 0,11% 0,00%

Public & Education

-0,04%

Financial & insurance

-0,08%

Agriculture and forestry and fishing -0,34%

Total economy

0,41%

Source: NBB


JOB CREATION IN BELGIUM SINCE 2008 2008 = 100

128 124 120 116 112 108 104 100 96 92 88 84

Agriculture and forestry and fishing Information and communication Public & Education

Industry Financial & insurance Human health and social work

Construction Real estate Entertainment and recreation

EMPLOYMENT IN BELGIUM HAS NEVER BEEN AS HIGH AS TODAY!

Wholesale and retail trade, transport Science, tech & administration

Source: NBB


Q/Q-4: Flanders

+24.5% +9.5% Wallonia

2016/Q3

2016/Q2

2016/Q1

2015/Q4

2015/Q3

2015/Q2

2015/Q1

2014/Q4

2014/Q3

2014/Q2

2014/Q1

2013/Q4

2013/Q3

2013/Q2

2013/Q1

2012/Q4

2012/Q3

2012/Q2

2012/Q1

2011/Q4

2011/Q3

2011/Q2

2011/Q1

2010/Q4

2010/Q3

2010/Q2

2010/Q1

2009/Q4

2009/Q3

2009/Q2

2009/Q1

2008/Q4

2008/Q3

2008/Q2

2008/Q1

2007/Q4

2007/Q3

2007/Q2

2007/Q1

STRONG RISE IN JOB OFFERS BUT NOT IN BRUSSELS

(PLACED IN PES)

80 000

70 000

60 000

50 000

40 000

30 000

20 000

10 000

 0

-1,6%

Brussels

Source: RVA-ONEM (National Employment Office)


JOB VACANCY RATE REFLECTS MALFUNCTIONING OF THE BELGIAN LABOUR MARKET THE JOB VACANCY RATE MEASURES THE PERCENTAGE OF VACANT POSTS COMPARED WITH THE TOTAL NUMBER OF OCCUPIED AND UNOCCUPIED POSTS. IT REFLECTS THE UNMET DEMAND FOR LABOUR, AS WELL AS POTENTIAL MISMATCHES BETWEEN THE SKILLS OF THE UNEMPLOYED AND THOSE SOUGHT BY EMPLOYERS. The Czech Republic (3.1%), Belgium (2.9 %) and UK (2.5 %) had the highest job vacancy rates. The job vacancy rate in Belgium rose from 2.2% (Q4 2015) to 2.9% (Q3 2016).

Evolution of job vacancy rate

3,5%

2,5% 2,0% 1,5% 1,0% 0,5% EU (28 countries) Czech Republic Belgium United Kingdom Germany Estonia Hungary Netherlands Austria Sweden Norway Slovenia Latvia Cyprus Luxembourg Croatia Romania Finland Lithuania Macedonia Slovakia Switzerland Ireland Bulgaria Greece Poland Spain Portugal

0,0%

3,0 2,8 2,6 2,4 2,2 2,0 1,8 1,6 1,4 1,2 1,0 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3

3,0%

Source: Eurostat

European Union (28 countries)

Belgium


FEDERGON-SECTORS


01-07 03-07 05-07 07-07 09-07 11-07 01-08 03-08 05-08 07-08 09-08 11-08 01-09 03-09 05-09 07-09 09-09 11-09 01-10 03-10 05-10 07-10 09-10 11-10 01-11 03-11 05-11 07-11 09-11 11-11 01-12 03-12 05-12 07-12 09-12 11-12 01-13 03-13 05-13 07-13 09-13 11-13 01-14 03-14 05-14 07-14 09-14 11-14 01-15 03-15 05-15 07-15 09-15 11-15 01-16 03-16 05-16 07-16 09-16 11-16

THE FEDERGON TAW-INDEX INCREASES STEADILY 270,3 258,6

242,5 265,6

245,4


OTHER FEDERGON-SECTORS SECTOR

EVOLUTION 2016

Services to individuals Projectsourcing Interim management Training Recruitment, Search & Selection Outplacement Temporary agency work

Source: NBB


CONCLUDING REMARKS THE ECONOMIC OUTLOOK IN THE SHORT & MEDIUM UNCERTAINTY IS THE ONLY CERTAINTY, BUT FOR THE POSITIVELY TO THE RECENT UNEXPECTED EVENTS.

TERM IS MODERATELY POSITIVE.

MOMENT, THE ECONOMY REACTS

THE ECONOMIC ACTIVITY SHOULD REGAIN MOMENTUM IN 2017 (+1.4%) & 2018 (1.6%), AS A RESULT OF A STRONGER RISE IN HOUSEHOLD CONSUMPTION UNDERPINNED BY SOLID INCOME GROWTH, AND WILL THUS MOVE MORE IN LINE WITH GROWTH IN THE EURO AREA. INFLATION WILL BE RATHER HIGH,

2.1% IN 2017. COMPARED TO THE GROWTH OF

ACTIVITY, THE RECENT RECOVERY IN THE LABOUR MARKET EVEN EXCEEDED EXPECTATIONS

(+59 000

GRADUALLY.

JOBS IN

AN

2016).

THE JOB INTENSITY OF GROWTH IS LIKELY TO DIMINISH

INCREASING CONFIDENCE WILL RESULT IN AN ENHANCEMENT OF THE

LABOUR MARKET DYNAMICS, ESPECIALLY IN THE MARKET-DRIVEN SECTORS, AND OVER 120

000 ADDITIONAL JOBS SHOULD BE CREATED BETWEEN 2017 AND 2019. LABOUR MARKET DYNAMICS WILL GRADUALLY INCREASE DUE TO REPLACEMENT OF RETIRING WORKFORCE. IN

THIS CONTEXT, THE POSITIVE TREND OBSERVED DURING THE LAST QUARTERS IN THE

LABOUR MARKET SHOULD CONTINUE IN THE COMING MONTHS AND STRENGTHEN THE ACTIVITIES OF FEDERGON MEMBERS.


CONTACT RESEARCH & ECONOMIC AFFAIRS DEPARTMENT PAUL VERSCHUEREN / FREDERIEK DE KIMPE

Havenlaan 86c/302 - 1000 Brussel Avenue du Port 86c/302 - 1000 Bruxelles Tel: 02/203 38 03 Fax: 02/203 42 68 stat@federgon.be


Economic Outlook 2017 & Beyond