Belgium

BELGIUM is a highly developed industrial country with intensive agriculture. Though poor in natural resources, it imports raw materials in great quantity and processes them largely for exports, equal to around two-thirds of GDP. About 80pc of trade in Belgium accounted for by the member countries of the European Union. Belgium ranks tenth as the largest export market for US goods and services.

After two years of economic stagnation, Belgium’s economy year-on-year increased by 1pc. Overall GDP growth should be 1.2pc for 2014 as a whole with a modest pick-up in 2015 on the back of private consumption and exports. Together with business investments, private consumption will support growth in the second half of 2014 and during 2015. GDP is expected to pick up from 1.3pc in 2015 to 1.6pc in 2016.

The Belgium Business Forecast Report has revised down 2014 real GDP growth forecast to 0.9pc from 1.2pc previously. Despite enjoying a relatively stronger recovery than several other eurozone member states, Belgium’s economy is nonetheless vulnerable to the lingering crisis in the single currency area. A particular concern is the national debt which, at close to 100pc of GDP, with the economy exposed to deterioration in risk sentiment and slowdown in growth. Reluctance of families to spend money, low inflation and pressure on investment are stated to be reasons for the weak growth of the economy.

Belgium’s economy is in a state of deflation. Inflation rate had plunged to its lowest level in almost five years in August, dropping to just 0.02pc from 0.34pc in July. In September inflation dipped to negative 0.12pc, now the lowest since November 2009. Energy prices continued to fall, but at a slower rate. According to the Belgian Economy Ministry, energy and food prices are already down while Belgian goods and services are getting cheaper in the shops. As consumers expect further price falls they have put off big purchases hitting economic growth. There are major concerns that deflation will be detrimental to the long-awaited economic recovery.

Wage growth is still above inflation. The gap between wage growth and inflation is having a negative impact on the competitiveness of Belgian firms, economic growth and the demand for labour. But employment is increasing. Unemployment rate remained unchanged at 8.50pc in September but is expected to fall from the third quarter onwards. With limited investment and job creation, the unemployment rate will take time to fall, remaining above 8pc until mid-2016.

The new government has submitted the draft 2015 budget to the EC designed to improve Belgium’s economic performance, while reaching a structurally-balanced budget by 2018. The government will need to keep a close eye on spending in order to continue narrowing the budget deficit, which is expected to fall from 2.7pc of GDP in 2014, to 1.5pc by 2018. Government spending will grow by around 1pc in 2015, rising modestly to about 1.2pc in the medium term. The budget draft has proposed shifting the tax burden away from labor and the costs of employment, cutting employers’ payroll taxes and increasing taxes on tobacco, diesel and lawyers’ fees.

Labour unions in Belgium have launched protest against the new government’s austerity measures which include extending the pension age, freezing the previously automatic link between wages and inflation and cutting public services. Cuts will also hit the civil service, culture and scientific research.

Netherlands

THE Dutch economy is the sixth-largest economy in the euro-zone. A highly mechanised agricultural sector employs only 2pc of the labor force but provides large surpluses for the food-processing industry and for exports.

After 26 years of uninterrupted economic growth, the economy - highly dependent on an international financial sector and international. The economy is slowly emerging from recession. Exports, corporate investments and consumption have improved in in recent years and the housing market is recovering. The recovery, however, is fragile.

The Rabobank research staff expects a modest increase in economic activity, driven mainly by exports and investment. GDP is expected to increase by 0.5pc in 2014 and further by 1.5pc in 2015. Geopolitical tensions pose a downside risk to exports and confidence. Real GDP was up 0.5pc in the second quarter compared to the first quarter. Consumption and exports were relatively weak in the second quarter. The conflict in Ukraine is a particular risk for Dutch exports. Western sanctions have now been imposed against Russia, which has reacted with a year’s ban on imports of vegetables, fruit, meat, fish and dairy products from member states of the EU, the United States, Canada, Australia and Norway.

The Russian boycott of agricultural products affects 0.1pc of the total exports of goods from the Netherlands. Exports are expected to rise by 3pc this year and further by 5.5pc in 2015 driven by faster global growth. Based on the improved economic outlook for major trading partners, gross private investment in property, plant and equipment is expected to increase by 1.75pc in real terms this year and by 5pc next year.

The external sector’s net contribution to overall economic growth rose to 1.1percentage points. The government expects GDP to expand 0.75pc in 2014 and growth picking up to 1.25pc in 2015. Focus Economics Consensus Forecast panelists see GDP growing 0.5pc and 1.4pc in respective years.

Dutch annual inflation rate accelerated to 1.1pc in October of 2014 from 0.9pc in September. The highest upward pressures came from housing, water and smartphone prices. Annual inflation rate slowed to 0.9pc in September of 2014 from 1pc in the previous month, mainly due to lower prices of airline tickets. The unemployment rate will remain high this year at 7pc and then fall slightly next year to 6.75pc. The contraction in the number of jobs for employees virtually came to an end in the first of this year.

Published in Dawn, Economic & Business, November 10th, 2014