Belgian central bank raises 2015 growth forecast, cuts outlook for 2016

Belgium's economy will expand by more than initially expected this year, but will slow down in 2016 due to slower growth of now solid domestic spending and investment, the central bank said on Friday. Belgium, the euro zone's sixth largest economy, is set to expand by 1.4 percent this year, but slow to 1.3 percent next year, central bank governor Jan Smets told a news conference. It should accelerate to 1.6 percent in 2017, the bank said.
The central bank's previous forecasts, from June, were for growth of 1.2 percent this year and of 1.5 percent in 2016 on the basis that the euro zone recovery was gathering pace. Smets said the forecast for 2015 had been increased in part because expansion in 2014 was revised up to 1.3 percent from a previous estimate of 1.1 percent. Growth would be driven by low oil prices, a weak euro and, to a lesser extend, low interest rates, but dampened by reduced growth in Belgium's export markets.
The forecasts do not take into account the potential impact on confidence and therefore growth of the attacks in Paris on November 13 and the heightened state of security alert in Belgium. The central bank sees private consumption, one of the drivers of growth this year, slowing in 2016, and corporate investment declining, with rising oil and food prices helping push inflation up to 1.9 percent.
However, the bank does see the contribution from foreign trade turning positive next year. Belgian economic growth slowed to 0.2 percent in the third quarter after expansion of respectively 0.3 and 0.5 percent in the first and second quarters. The year-on-year rate was 1.3 percent in the July-October period. Business sentiment matched a four-year high in November, while consumer sentiment has picked up from a September dip as the outlook for the economy and the labour market have improved.
Belgium's budget deficit should be 2.9 percent of gross domestic product this year and next, dropping to 2.5 percent in 2017, partly the result of a tax shift designed to reduce wage costs. The bank does not expect a steady decline of the deficit partly because it is forecasting lower state income this year than the government does. It also does not take into account estimates for certain measures, such as extra income that might come in due to the fight on tax fraud.