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Freddy Van den Spiegel

Chief Economist, BNP Paribas Fortis Bank

 

Freddy Van den Spiegel

Chief Economist, BNP Paribas Fortis Bank

  
 
 
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The Economist Perspective

Good Times in 2010?


 

The economic recovery is well under way. The financial crisis appears to be in check and the global recession in its final phase. Problems are still surfacing, but these are no longer triggering global panic. Dubai's payment problems are being settled amicably and, although disquiet about the creditworthiness of countries such as Greece is causing some turmoil in the financial markets, this has not developed into a global problem.

The global economy should continue to show signs of real improvement provided that any new problems remain local and circumscribed. However, we are not out of the woods yet. There are still considerable problems to be resolved: imbalances in world trade resulting in unsustainable deficits in the US, excessive public debt, a financial sector that is still crippled, global environmental challenges and growing geopolitical tension. Although the recovery may well continue, there will be pitfalls along the way for many years to come.

Against this backdrop of moderate optimism, a small country like Belgium can now start to assess the damage and learn some lessons for the future.

Belgium Takes Stock

Overall, Belgium has weathered the storm well, despite the structural weaknesses already evident when the crisis began: all the major banks went under during the financial crisis and the high public debt was hanging over the economy like the sword of Damocles when the crisis erupted. But, contrary to many predictions, the economy held up well as house prices barely fell, consumption remained buoyant, the rise in unemployment was limited and the public deficit remained in reasonable bounds. In comparison with the neighboring countries, the results can even be termed good.

During the boom period (2003-2008), Belgium recorded economic growth of 2% per annum, matching growth in the surrounding countries. But Belgium's growth was not as badly hit during the recession: activity in Belgium dipped by just 3%, as against a fall of 5% in Germany and the Netherlands.

Job creation totaled 7.4% between 2003 and 2008, compared with an average figure of 3.5% in the neighboring countries. Even if we strip out a number of heavily subsidized jobs from the statistics, job creation in Belgium is still 5%. As a result of the crisis, unemployment in Belgium increased by 1.2%, slightly less than the average 1.4% in surrounding countries.

In the aftermath of the crisis, public debt looks set to increase from 84% of GDP to 104%, but, while the absolute level of debt in the neighboring countries is still significantly below the Belgian level, the increase of debt is stronger for France and the Netherlands. Unfortunately, they appear to be catching up with Belgium's bad habit.

International trade seemed like more of a problem for Belgium when the crisis started because the traditional trade surplus evolved into a deficit. This is no doubt attributable to structural factors, but the individual character of a small, very open economy with large ports should not be overlooked. The start of the recession was accompanied by rapid stockpiling, which was partly concentrated in the ports where the storage facilities are available, and immediately skews the international trade statistics. But when the economy recovers, the export data also improves quickly and dramatically, as happened in the third quarter of 2009. The fact that Belgium is often seen as a leading indicator for the EU economy could be due to this mechanism.

Danger Ahead?

The major danger of this analysis is that it could lead to a lack of political will to change: things are not too bad, so there is no need to make structural changes. However, this would be disastrous. Challenges such as the ageing population or Belgium's competitive position in a globalized world require timely, radical reforms. The Belgian political world cannot continue to focus on the tricky domestic political balances.

And there lies the sticking point.

One good thing is that the whole of the EU, and not just Belgium, is facing the same challenge, which gives room for hope as a small, open country like Belgium is obliged to follow the best practices in neighboring countries and this has proved successful to date. If Europe sets clear guidelines, Belgium will surely again prove itself to be a "good disciple".

  
 
 
 
 
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“The major danger of this analysis is that it could lead to a lack of political will to change: things are not too bad, so there is no need to make structural changes. However, that would be disastrous.”

“The major danger of this analysis is that it could lead to a lack of political will to change: things are not too bad, so there is no need to make structural changes. However, that would be disastrous.”

  
 
     
 
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