Wallonia catches a glimpse of the economic recovery

  • Iweps, the Wallonian institute for evaluation, forecasting and statistics, is detecting signs of reversal of the Wallonian economic trend. 
  • The Walloon economic forecasters are waiting for confirmation of the Eurozone economic recovery. Its well-being will weigh heavily in determining Wallonian economic performance just as in the rest of Belgium. 

 Is the recovery just around the corner? The most recent economic indicators in many Eurozone countries (except for the ones closest to Belgium) are detecting some signs of life, or more precisely, a trend reversal. That’s great news, and it’s also the case for Wallonia.

1 Reversal in the trends in Wallonia. In its monthly economic forecast, Iweps points out a number of indicators that have been going in the “right direction” for the past few months.

Even if unemployment remains high, households seem to be gaining confidence in the future. The same holds true for the heads of companies, especially in manufacturing industries. Industrial production is slightly higher and orders, especially for exports, are increasing.

Prospects for the construction industry, on the other hand, are not as rosy. Applications for building permits are clearly on the decrease (the latest data is from March). The industry could slow down by the end of the year.

This does not keep Walloon economic forecasters from seeing in the latest available number an indication that the trend is currently reversing. If this is confirmed in the next few weeks and months, it would announce the long-awaited recovery. 

This would confirm their previous predictions from last March. To recap, Iweps was counting on a 0.2% Walloon GNP increase (following a 0.2% decrease in 2012). Will they revise their prediction upward during their next forecasting analysis that will be revealed this fall? Iweps remains cautious. 

The Walloon and Belgian economies at large are greatly dependent on the European economic climate. Wallonian businesses’ main customers are its neighbors: France and Germany. 

Our recovery will first pass through rising exports, then through company investments, and finally, when the improved forecast translates into reality in the workforce, through household consumption. Is this a credible scenario?

2 The Eurozone will climb out of the recession… European economic forecasters in general think that the Eurozone actually climbed out of recession in the second quarter following six quarters of decreased activity.

On Wednesday, we will know for sure. Eurostat, the European statistics bureau will publish the first estimate of the second quarter growth numbers for the Union countries.

It should be immediately noted that it won’t be an occasion to celebrate. No one would dare qualify a 0.2% increase in real GNP (indexed for inflation) as growth, however modest.

 Let there be no mistake. Coming out of recession is not necessarily equated with economic recovery, especially since there is so much contrast within the Eurozone. The north is faring better, especially Germany (which is good for Belgian companies) while France continues to stagnate (which is much less positive). On the other hand, the forecasting situation remains negative in the south, especially in Italy and Spain, the third and fourth largest economies in the zone.

The recovery promised by the FMI as well as by the European Central Bank or the Commission will be very slow at best.

In its last forecast, the International Monetary Fund gambled on next year’s growth to be just below one percent over the Eurozone (as opposed to a 0.6% decrease this year).

The German economy should perform better (+1.3% over 0.3% this year) and France not so well at +0.8 over -0.2%. Italy should perform with very slight growth (+0.7% over -1.8%). Spain, however, should stagnate (0% over -1.6%).

3 No expectation of solid growth dynamics. This is no surprise since Europe, which will remain in budgetary stabilization (or austerity) mode, is counting mainly on exports to the rest of the world to help it recover.

Before this can happen, Europe has to establish an autonomous growth dynamic, initiated by interior demand (by household consumption and company investments). This is the only guarantee of a long lasting and job creating recovery in Europe, thus also in Belgium and Wallonia.

We are warned that many risks loom on the horizon: the slowing emerging economies, the sluggish recovery in the United States, threatened by budgetary disagreements between Republicans and Democrats, the fragile European banking industry situation, high debt and also the possible reigniting of financial tensions in the midst of the Eurozone.

DOMINIQUE BERNS

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