The corona crisis is taking a high human toll, but clearly also has a significant impact on the economy. In this article, we offer an update of KBC’s economic outlook for the Belgian economy. We are aware that this numerical estimate, even more than in normal times, is uncertain. Nevertheless, we want to provide new economic insights. They take into account the latest developments in the spread and medical impact of the Covid-19 virus and policy responses to mitigate the impact on public health and the economy. In our analysis we take several possible scenarios for GDP growth into account: a base scenario and an optimistic and pessimistic scenario, which we currently assign a probability of 50%, 15% and 35% respectively. In a box added to the article, we also provide an estimate of the impact of the crisis on Belgium’s public finances.
De Belgische woningprijzen bleven ook in 2019 sterk toenemen, toe te schrijven aan de lage rente, de sterke jobcreatie en de afschaffing van de woonbonus in Vlaanderen begin 2020. De coronacrisis betekent allicht het einde van de langdurige prijshausse in België. De inkomensschok veroorzaakt door de crisis zal de woningvraag vanwege de gezinnen immers zwaar treffen, waardoor de prijzen zullen corrigeren. De aanhoudend lage rente en de toegenomen risicoaversie op de financiële markten zullen de (investerings)vraag naar vastgoed evenwel ondersteunen en de verwachte prijscorrectie beperken. Concreet gaan we ervan uit dat de Belgische woningprijzen in 2020 en 2021 met respectievelijk 3% en 2% zullen dalen. Dit basisscenario, waaraan we momenteel een waarschijnlijkheid toekennen van 50%, is onderhevig aan heel wat onzekerheid. De risico’s zijn vooral neerwaarts gericht en dus zijn sterkere prijscorrecties mogelijk.
In recent decades, emerging markets have become more integrated into the global financial system. High-yielding emerging market government debt (‘emerging debt’) gained growing interest from investors, especially against a backdrop of historically low interest rates in developed markets. Given the higher risk typically associated with emerging market assets, and a general growing interest in socially responsible investing (SRI), it is important to be able to assess whether emerging debt meets certain criteria related to economic stability, good governance, and environmental and social impacts. In connection with the SRI funds offered by KBC Asset Management, in this research report we present the sustainability screening of a wide group of emerging markets (the KBC Emerging Markets Sustainability Barometer) to arrive at a ‘best in class’ sustainable investment universe. The Central and Eastern European countries score quite well in the ranking. Countries from the region secure the top 5 spots and 11 out of 18 emerging countries that are eligible for investment in KBC's SRI bond funds originate from the region.
Over the last three years, Belgium's public debt has fallen by more than 4 percentage points of GDP, after having risen sharply during the financial crisis. This reversal is good news and was mainly due to stronger economic growth and fiscal consolidation. However, at 103.4% of GDP, the debt ratio remained among the highest in the euro area in 2017. To further reduce the debt to a sufficient extent, the primary budget surplus should continue to build up in the short term to above 2% of GDP, in line with the target set in the Stability Programme. In the longer term, new savings should -preferably be made at the same time to offset the costs of an ageing population. Otherwise, a declining primary surplus threatens to ultimately increase the debt without it having sufficiently fallen towards the 60% level. To reduce the debt ratio structurally in the context of a normalisation of the current historically low interest rate, the growth potential of the economy will also have to be increased. Despite the still high debt, Belgium is maintaining market confidence. This is related to the relatively healthy position of the private sector, as a result of which the Belgian economy as a whole is in a very positive net asset position vis-à-vis the rest of the world.
In recent years, there was a broad-based recovery in Europe’s housing markets. Since the second half of 2016, a majority of EU countries are again recording annual house price increases of above 5%. The price rally has prompted public debate as to whether EU property markets are overvalued. In general, fundamental factors, such as disposable income, interest rates and demographics, can explain much of the recent rally seen in the EU28. The upturn can, in particular, be linked to the prevailing low interest-rate environment and to the economic recovery that started early 2013. Looking forward, the sustained positive growth environment will likely provide sufficient counterweight to rising interest rates. Therefore, further house price increases, albeit at a notably more modest pace than of late, are the most likely scenario for the coming years. The main risks facing Europe’s housing markets are to emerge in circumstances where there is: (1) a severe growth slowdown combined with rising unemployment, (2) an unexpectedly strong and sudden increase in interest rates, and (3) a decline in popularity of real estate as an investment. Based on our assessment of valuation metrics and household indebtedness indicators, vulnerabilities to such shocks seem the largest in Sweden, Luxembourg and Austria.