Banque nationale de Belgique : Belgian economic activity is expected to increase by 0.2 % in the last quarter of 2021

According to revised statistics Belgian real GDP increased by 2.0 % in the third quarter. This is even better than the estimate in the previous Business Cycle Monitor (+1.8 %), which corresponded perfectly with the earlier NAI flash-estimate. Largely in line with our expectations, growth was supported by a rebound in domestic demand, especially private consumption, while net exports constituted a drag to growth. However, unexpectedly, business investment shrunk for the first time since the spring of 2020.

Private consumption is expected to slow down sharply in the fourth quarter after the substantial rebound in the third. Strong headwinds come from weakening consumer confidence, the massive increases in energy prices as well as the worsening health situation.

The overall business sentiment indicator has also come down from its peak, but it has stabilised at rather high levels in the last three months. However, to the extent that business investment was held back in the third quarter by rising input prices and supply-chain bottlenecks, the decline may continue in the current quarter. Housing investment should continue to expand on the other hand, but at a more modest pace than in the most recent quarters.

Government consumption should again grow moderately. Government investment is more volatile, in part due to the delivery schedule of some military aircraft (which are imported and thus do not or barely affect GDP) which could cause government investment to shrink in the final quarter of 2021. While exports should recover somewhat from the fall in the third quarter, the contribution of net exports to GDP growth is still expected to come in slightly negative again in the fourth quarter.

The NBB nowcasting model "BREL" predicts a quarterly growth rate of close to zero in the fourth quarter of 2021, while the "R2D2" model is somewhat more optimistic with a growth rate of 0.8 %. The uncertainty of these nowcasting models is exceptionally large in the current circumstances: the massive shock of the COVID‑19 crisis constitutes a challenge for the estimation of standard time-series models. Therefore, these model-based estimates need to be complemented with information gathered from other sources, including surveys as well as expert judgment.

In this connection, it should be stressed that in all likelihood activity was actually already decelerating in the course of the summer but the quarterly growth rate for the third quarter was pushed up by an important carry-over effect from the second quarter, when containment measures were gradually relaxed. Growth in the current quarter should in principle not benefit from such a carry-over effect.

All in all, taking recent pandemic developments into account, a growth rate of just 0.2 % in the fourth quarter seems the most likely scenario at the moment.