Why does economic growth remain slow in our country? Arne Maes, Economic Advisor at BNP Paribas Fortis sheds light on these issues.
Economic growth in Belgium has been slow for decades. Yet Belgium is not alone in this. Almost all industrialised countries have suffered the same fate and the underlying causes are largely the same.
For example, the gradual transition from a manufacturing to a service economy has led to a slowdown in growth in the countries concerned. Technological progress, which allows the manufacturing industry to produce more efficiently, has a much less marked effect on the services sector. This means that an increase in employment in services acts as a brake on overall growth.
What about Belgium?
Labour productivity is growing at a significantly slower rate in Belgium than in neighbouring countries. Since the beginning of the crisis, the extent to which productivity has declined in the Belgian services industry, especially in non-market services, such as education, health and government activities, has been particularly striking. Naturally, another issue is that since the beginning of this century, the wages in our country have risen nearly four times faster than our productivity.
One explanation for Belgium’s poor performance could be the lack of innovative technology companies within our national borders. After all, the relative importance of these rapidly-growing sectors in the Belgian economy has waned in recent years, and with it its contribution to research and development.
Moreover, several trends which, historically, have contributed to economic growth are slowly drawing to a close. So-called global value chains, where multinationals ship their products from continent to continent as part of the production process, have gained in importance. In recent years, increased local specialisation has led to significant efficiency gains. As an economy that is strongly focused on international trade, Belgium has always been one of the pioneers in this respect, but comprehensive task specialisation has now reached a natural ceiling.
In addition, the increase in the educational levels of the Belgian population is slowly approaching its limits. As a result, we cannot expect education to make a positive contribution to growth, either.
The new normal?
Some of the developments discussed above are therefore irreversible, but growth itself is not, by any means. Fortunately, there are some ways in which this stuttering economy can be revived.
We need investment in order to improve our long-term prospects. Companies need legal certainty and transparency. In this respect, the forthcoming review of the Belgian Dock Work Regulation Act and the Belgian Excess Profit Rulings tax scheme inspire little confidence.
On top of that, public investment has also fallen sharply in recent years, often under the guise of much-needed consolidation of finances. However, further erosion of the existing infrastructure must be stopped. Even in difficult budgetary times, projects with high added value pay dividends, especially at a time when interest rates remain historically low.
In addition, Antwerp and Brussels are both in the top five cities for traffic congestion. A redesigning of the existing network and financial incentives affecting individual car usage are absolute musts.
Despite some positive reports, the employment rate – at 67% – remains significantly lower than that in our neighbouring countries. Earlier this year, the IMF put its finger on the sore spot: in the fragmented Belgian job market, some population groups (older people, immigrants) are still finding it extremely difficult to carve out a space. For its part, in its recent country-specific recommendations the European Commission has yet again denounced Belgium's relatively inflexible wage setting. This means that further reforms are urgently needed.
One thing is clear: the new normal is bringing with it other challenges. However, we will be able to kick-start higher growth if we focus on investments that pay for themselves and structural reforms.
BNP Paribas Group, first quarter 2020 results
Excellent business drive in the quarter impacted by an unprecedented health crisis
The health crisis has had major repercussions on macroeconomic outlook and produced extreme shocks on the financial markets. After a quarter in line with the 2020 objectives of BNP Paribas, health crisis related developments had several major negative impacts on the first quarter 2020.
Commenting on these results, Chief Executive Officer Jean-Laurent Bonnafé stated:
“In response to the health crisis, the Group’s teams have mobilised around the world to contribute to the functioning of the economy and its financing. Our concerns have been to protect our employees who are fully mobilised to ensure banking services, to quickly implement solutions to support the financing of our corporate, institutional and individual clients, and to launch in all regions where we are present a plan for emergency donations to the hospital sector and organisations committed to assist vulnerable people.
At the end of a quarter supported by an excellent business drive, in line with its 2020 objectives, the results of BNP Paribas for the 1st quarter 2020 were impacted by the harshness of the health crisis. The good resilience of revenues and results despite this shock demonstrates the robustness of the Group’s diversified and integrated model. With all teams at BNP Paribas, whose I want to thank tireless commitment to serving customers and providing support to society, we will continue our efforts to mitigate the impact of the crisis on the economy and prepare for the future.”
Press Release: https://invest.bnpparibas.com/documents/1q20-pr-23455
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BNP Paribas Group, second quarter 2019 results
The business of BNP Paribas was up this quarter in a context where economic growth remained positive in Europe but slowed down, implying expectations of a continued low interest rate environment.
Director and Chief Executive Officer of BNP Paribas, Jean-Laurent Bonnafé:
“BNP Paribas delivered in the first half an increase in net income at 4.4 billion euros. Revenues were up thanks to business growth in the operating divisions. Operating expenses were well contained and benefitted from the transformation plan, generating a positive jaws effect. The common equity Tier 1 ratio rose to 11.9%, illustrating the Group’s solid balance sheet. New digital experiences rolled out for customers are a success and the Group is actively executing its ambitious policy of engagement in society. I would like to thank all the employees of the Group for their dedicated efforts to achieve these good results. ”
BNP Paribas Group, first quarter 2019 results
The business of BNP Paribas was up this quarter for the three operating divisions with in particular a gradual upturn in the business of CIB. Economic growth slowed down in Europe but remained positive. After the crisis in the markets at the end of 2018, the market context remained lackluster at the beginning of the quarter, but improved towards the end of the period.
Director and Chief Executive Officer of BNP Paribas, Jean-Laurent Bonnafé:
“BNP Paribas delivered a good level of result this quarter, at 1.9 billion euros. Revenues were up thanks to business growth in the operating divisions with in particular an upturn in client business at CIB. Operating expenses were well contained and benefitted from cost saving measures, generating a positive jaws effect.”