■ Around mid-2013, economic recovery set in. Confidence is back: for consumers as the housing market turned around and for manufacturers by the improvement in world trade.
■ Nevertheless, some headwinds remain such as the tight fiscal stance, the over-indebtedness of households that weigh on consumer spending and the shrinking of the financial sector.
■ The economy is expected to grow by 0.9% in 2014 and 1.2% in 2015. Non-energy exports and investment will be the main drivers. Inflationary pressures are absent.
The business cycle has turned
Following the global financial and economic crisis in 2008, the economy slumped in its longest triple-dip recession in more than 50 years. By mid-2013, economic activity was 4.2% lower than at the peak in Q1 2008. The economy started growing again in Q2 2013 by 0.1%. In Q4, growth accelerated to 0.9%, partly due to a surge in car purchases ahead of a change in taxation.
Consumer confidence turned around in mid-2013 on signs that house prices bottomed out after having slumped by 16.5% since the start of the crisis.1 In Q1 2014, they rose by 1.2% from a year earlier. Moreover, thanks to a substantial reduction in pension contributions, real disposable income increased in 2014 after four years of decline. Private consumption is showing signs of stabilisation. In January-February, retail sales were about the same level as a year earlier. Moreover, the unemployment rate (national definition) has stabilised at around 7.5% since June 2013.
Producer sentiment also started to improve. Since last October, the balance of opinion concerning output expectations has been in positive territory. The improvement in business confidence is being gradually translated into business investment. The year-on-year growth rate of business investment in equipment has been in positive territory since last October. The latest investment survey shows a rebound in capital spending in the manufacturing sector by 2% in 2014, after a 3% decline in 2013.
BY Raymond VAN DER PUTTEN
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