Report 2003 - | nbb.be · 2004-07-22 · Iraq crisis, but later in the year they resumed their...

Report 2003

Eurosystem

Part 1 Economic and fi nancial developments

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FOREWORD

ForewordBy Guy Quaden, Governor

In 2003 the world economy emerged from a period characterised by successive episodes of fi nancial turbulence and geopolitical tensions which had damaged the confi dence of businesses and consumers. Activity picked up, driven mainly by the United States, where growth accelerated sharply during the year, but also by China, which continued its strong expansion, and – more surprisingly – by Japan, whose performance had been disappointing throughout the past decade.

In the euro area, the recovery was slower and less robust. Over 2003 as a whole, growth slowed for the third consecutive year, from 0.9 p.c. in 2002 to 0.5 p.c. in 2003. However, that deceleration conceals a turning point reached in the second half of the year.

The relatively disappointing performance by many European countries in terms of growth and rising unemployment highlight – should that be necessary – the need for unceasing efforts to carry out the Lisbon agenda, aimed at making the European Union a far more dynamic and fl exible economy.

Infl ation in the euro area dropped from 2.3 p.c. in 2002 to 2.1 p.c. in 2003, though the fall may seem rather modest in view of the subdued economic activity and the substantial appreciation of the euro.

Since infl ation expectations remained in line with the target set by the European Central Bank – infl ation of no more than 2 p.c. in the medium term, but not far below that fi gure either – the ECB was able to cut its key interest rate to historically very low levels (2 p.c. in nominal terms, and actually zero in real terms). Monetary policy thus made its own contribution towards stabilising economic activity in the euro area.

The appreciation of the euro was not unexpected, in that the single currency had previously been manifestly undervalued. However, in 2003, the impact of this higher exchange rate on the competitiveness of the sectors exposed to competition from outside Europe was more than offset by the favourable effects, for the euro area economy, of the global economic recovery and the cheaper imports, which benefi ted households and many businesses. Nonetheless, with the threat of terrorism and geopolitical tensions still lingering, the persistence of a substantial balance of payments defi cit on the United States current account and its potential repercussions on exchange rates are currently the world economy’s main cause of uncertainty.

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The Belgian economy generally experiences cyclical fl uctuations very close to those of the euro area. The year 2003 was not really an exception to that rule although, in the fi rst half of the year, the Belgian economy seemed to show stronger resilience than its main partners, particularly as regards private consumption, and participated fully in the recovery which began in the second half of the year. Growth therefore strengthened somewhat, rising from 0.7 p.c. in 2002 to 1.1 p.c. in 2003.

As regards infl ation and public fi nances, Belgium also outperformed the European average. The weak pressure exerted by demand, the appreciation of the euro and the generally moderate movement in labour costs in 2003 combined to maintain infl ation at a low level (1.5 p.c.). Moreover, while the average budget defi cit in the euro area grew from 0.9 p.c. of GDP in 2000 to 2.8 p.c. in 2003, with a number of countries actually exceeding the 3 p.c. limit on more than one occasion, the Belgian government once again closed its accounts with a small surplus in 2003. In a diffi cult economic climate, however, that result was achieved only through exceptional revenue from non-recurring transactions.

The structural weakness of the labour market remains the most worrying aspect of the Belgian economy, a situation exacerbated by the sluggishness of business activity. Over the year as a whole, net job losses totalled around 15,000 units, and the gap between the Belgian employment rate and the European average probably became a little wider.

In common with many others, the Belgian economy is currently feeling the effects of radical changes such as globalisation, technological progress and the various developments taking place in society. Moreover, the impact of the ageing population will be considerable in the coming decade. Like its European partners, Belgium, too, must endeavour to meet these various challenges if it is to remain one of the most prosperous and cohesive countries in the world.

Welcome though it may be, the upturn in the cycle – which should continue in 2004 – cannot be an excuse for relaxing the efforts aimed at the structural strengthening of the Belgian economy : quite the contrary.

The necessary reforms concern many areas. As the economic recovery gains momentum, budgetary consolidation must also be reinforced. In view of such factors as the expected decline in the population of working age, it is important to increase participation in the labour market and to improve the effi ciency of that market in various respects. Containment of labour costs remains crucial, both for preserving competitiveness and for promoting employment. Finally, the growth potential of the economy should be augmented by a climate conducive to business and innovation, effi cient public administration, and fi nancial and product markets which function smoothly.

Meeting these challenges will demand great resolve. Already, following earlier agreements, reference frameworks have been drawn up and timetables defi ned in a number of the areas mentioned. Thus, budgetary consolidation is the subject of stability programmes, and Belgium has given the European Union an undertaking that it will adhere to them. The National Employment Conference in the autumn of 2003 gave the authorities and all actors concerned the opportunity to produce an accurate diagnosis of this vital issue and to set an agenda for future discussions, in which the forthcoming collective bargaining round will represent an important stage. All these protracted processes must be pursued consistently and with perseverance, and supplementary measures will often be needed. Finally, everyone must join forces to back the effort required, in accordance with their own particular responsibilities : the federal government, the governments of the communities and regions, and the social partners.

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CONTENTS

FOREWORD 5

REPORT PRESENTED BY THE GOVERNORON BEHALF OF THE COUNCIL OF REGENCY 12

ECONOMIC AND FINANCIAL DEVELOPMENTS 2

Chapter 1 : International environment 3

Summary 3 United States 6 Japan and emerging Asian economies 9 European Union 12

Chapter 2 : The monetary policy of the Eurosystem 27

Strategic aspects 27 Operational aspects 32

Chapter 3 : Output and expenditure in Belgium 37

Summary 37 Development of activity 39 Main categories of expenditure 41

Chapter 4 : Labour market and labour costs 47

Labour market 47 Labour costs 54

Chapter 5 : Prices 61

Infl ation in Belgium 61 Infl ation differential between Belgium and the euro area 65

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Chapter 6 : Public fi nances 71

Revenue, expenditure and overall balance 71 Long-term dynamics of health care expenditure 87

Chapter 7 : Financing balance of the economy and current transactions on the balance of payments 91

Chapter 8 : Financial accounts and fi nancial markets 97

Financing structure and investments in the Belgian economy 97 Non-fi nancial corporations 98 General government 103 Individuals 105

Chapter 9 : Financial stability 111

International fi nancial markets 111 Belgian fi nancial intermediaries 115 Institutional organisation of prudential supervision 122

Methodological note 127

Conventional signs and list of abbreviations 129

STATISTICAL ANNEX 132

List of tables and charts 157

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REPORT PRESENTED BY THE GOVERNORON BEHALF OF THE COUNCIL OF REGENCY

International environment

1. In the past few years, the world economy had been gripped by successive episodes of fi nancial turbulence and geopolitical tensions which damaged the confi dence of businesses, consumers and investors. In the year under review, however, signs of a turn for the better multiplied and strengthened.

2. Once the military confl ict in Iraq had been brought to a rapid conclusion and the SARS epidemic in Asia had subsided, the international business and investment climate improved considerably. Throughout the world, share prices recovered from the heavy knocks suffered in the three preceding years, and risk premiums on the corporate bond markets declined. In combination with the historically low interest rates prevailing almost everywhere, these developments facilitated further strengthening of corporate balance sheets and gave businesses a keener appetite for new investment. Oil prices also responded well at fi rst to the resolution of the Iraq crisis, but later in the year they resumed their upward trend, boosted by growing world demand and the restrictions – voluntary or otherwise – on production capacity in a number of oil-producing countries.

3. The American economy once again displayed great resilience so that, together with a number of fast growing Asian countries – including more particularly China, which has now become the third largest economic power in the world – it acted as a vital engine of the international economy. Bolstered by the dynamic demand in the Asian region and the United States and by the improved investment climate, the Japanese economy also unexpectedly staged a recovery, although the structural imbalances and defl ationary tendencies affl icting Japan for quite some time have not yet been fully eliminated. In contrast, in the euro area the recovery has been slower and less robust : in the fi rst half of 2003, GDP growth by and large stalled, as a result of declining exports and investments, but the second half of the year saw a gradual revival in activity, encouraged by a signifi cantly improved external environment.

4. In most industrial countries an expansionary macroeconomic policy stance was maintained, which gave a major short-term boost to economic activity. That was particularly true in the United States, where public spending – including defence expenditure – was stepped up sharply, and substantial tax cuts were implemented, while the monetary authorities reduced short-term interest rates to the exceptionally low level of 1 p.c. Elsewhere, too, and more particularly in the euro area, the historically low interest rates were a factor underpinning activity.

5. Although the chances of a continuing and more broadly based recovery for the world economy are now considerably greater than they were a year ago, a number of imbalances and risk factors nonetheless raise concerns about the sustainability of the recovery. Apart from the lingering geopolitical tensions and threat of terrorism, in particular the persistent and unusually large United States current account defi cit – which has now grown to around 5 p.c. of GDP – remains a latent factor of uncertainty for the global economy and the international fi nancial system.

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6. The United States’ external defi cit is nothing new, but in the past two years both its underlying causes and the way it has been funded have radically changed. Between 1995 and 2001 the swelling current account defi cit was chiefl y a refl ection of the growing disparity between domestic saving and private investment in the United States, fostered by euphoria over the growth opportunities presented by the “new economy”. Against that background, the United States had been able to fund its defi cit via a substantial infl ux of foreign direct and portfolio investment. Demand for dollar assets was actually so strong that the American currency appreciated considerably. Subsequently, however, those developments appeared to be based partly on exaggerated and irrational expectations, so that the fi nancial bubble created by the “new economy” eventually burst, and the infl ow of foreign direct investment dried up. However, the external imbalances remained largely uncorrected as the American savings defi cit was shifted from the private to the public sector, with a budget position that was almost in balance in 2001 turning into a defi cit of around 5 p.c. of GDP in 2003. Furthermore, the public sector also began to play a greater role in fi nancing the current account defi cit, as many central banks – especially in Asia – bought US government securities on a large scale. It was precisely these developments that triggered growing concern on the international fi nancial markets about the sustainability of such large balance of payments imbalances, resulting in downward pressure on the dollar, especially against the euro.

7. Such corrections to international exchange rates are an unavoidable and even essential element of the balance of payments adjustment process, certainly insofar as they rectify earlier misalignments. But experience has shown that an orderly absorption of external imbalances also requires adjustments in the real economy. The current US fi scal policy stance has undoubtedly provided a signifi cant stimulus, indirectly encouraging the global economic recovery, but it cannot be sustained over time. The reduction in the budget defi cit which is bound to come sooner rather than later, would help to curb domestic dissaving. That might temper American growth somewhat for a while, but at the same time it would alleviate one of the major threats to the growth prospects of the world economy. However, the global balance of payments disequilibria are not a purely American phenomenon, suggesting that stronger growth outside the United States could also help to mitigate them. For Japan and the euro area that should be one more incentive to forge ahead with the structural reforms required to strengthen their growth potential. Conversely, the tendency to resort to protectionism or the artifi cial maintenance of undervalued exchange rates is bound to be counterproductive. It is therefore important that a number of Asian countries, including China, should pave the way for a move towards greater exchange rate fl exibility over time, by implementing reforms to enhance the resilience of their fi nancial sector.

8. In comparison with other regions of the world, activity in the euro area last year was decidedly below par : averaged over the whole year, GDP growth declined further from 0.9 p.c. in 2002 to an estimated 0.5 p.c. in 2003, though there were signs of a revival in activity here, too, in the second half of the year. Yet adjustment to the economic shocks of past years – which were largely universal – has clearly been slower and more faltering in Europe than in the United States, for example. These differences in response may be attributed to both policy and structural factors.

9. For instance, the counter-cyclical relaxation of fi scal policy in the United States was far more radical than in the euro area. Apart from the fact that the American government, in response to the geopolitical developments, substantially stepped up its military and security expenditure, the divergent initial budget positions in the two regions also played a role : in 2000 the American budget showed a substantial surplus of 1.4 p.c. of GDP, while the average member of the euro area was still running a defi cit of 0.9 p.c. of GDP, one reason being that many countries had failed to strengthen their structural budget position during the last economic boom.

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10. However, a more decisive factor is that the European economy appears to produce a less fl exible response to shocks, indicating persistent rigidities hampering more effi cient market operation. This was illustrated by the differences in the business sector’s response to the latest downturn. In the past two years both the reduction in the large corporate debt position and the improvement in profi tability proceeded signifi cantly faster in the United States than in the euro area. And although American fi rms cut back their investment and labour input more sharply at fi rst, both are now clearly on the road to recovery, supported by substantial productivity increases – which continue to be a structural characteristic of the American economy. In contrast, in the euro area signs of an upturn in investment and employment have so far been limited.

11. Taking the year as a whole, apart from the further reduction in the volume of business investment, it is mainly foreign trade that has put a damper on the expansion of economic activity in the euro area. In the fi rst half of the year, in particular, net exports made a strong negative contribution to growth, owing to the still prevailing weakness of foreign demand and the appreciation of the euro. The euro’s steep rise since the beginning of 2002 harmed the price competitiveness of European producers, causing a loss of market shares both at home and abroad, which depressed the volume of exports and boosted imports. However, from the third quarter onwards, the steady strengthening of foreign demand more than outweighed the adverse effects of the sustained appreciation of the euro, thus laying the foundation for an export-led revival of activity in the euro area.

12. After languishing throughout 2002, private consumption did recover to some extent last year and was thus the key component of expenditure buttressing growth in the euro area. Although consumer confi dence has shown a slight improvement since the spring, it has remained relatively weak, refl ecting the growing uncertainty over the outlook for employment and mounting concern over the sustainability of the pension systems and other welfare provision in the light of rising budget defi cits in a number of countries. Private spending was therefore supported mainly by a further rise in real disposable incomes as, despite the subdued economic activity, wages continued to increase fairly sharply while tax cuts in some countries provided an extra boost.

13. Despite the weakness of demand and the appreciation of the euro, infl ation in the euro area hardly eased, continuing to hover around 2 p.c. throughout the year. In the fi rst place, that was due to a number of exceptional, temporary factors, such as new oil price rises, food price increases caused by adverse weather, and higher indirect taxes in a number of countries. But also the underlying trend in infl ation bore witness to a certain degree of inertia, due partly to the combination of weak productivity gains and stubbornly rising labour costs, plus the fact that the appreciation of the euro was refl ected only slowly or incompletely in consumer prices.

14. Given the more robust international environment, the gradual recovery in confi dence, favourable fi nancing conditions and generally moderate infl ation outlook, the conditions for sustaining the incipient recovery appear to be present in the euro area as well. Most international institutions are therefore expecting GDP growth to rise to around 1.6 to 1.9 p.c. in 2004, provided that the initial impetus – which at the moment comes mainly from strengthening foreign demand and an accommodating macroeconomic policy stance – is translated in due course into endogenously buoyant domestic spending.

15. The disappointing growth fi gures and the renewed rise in unemployment highlight once again the need for unceasing efforts to carry out the Lisbon agenda of reforms aimed at turning the European Union into a dynamic and fl exible economy. Furthermore, the effi cient operation of monetary union imposes specifi c demands on the macroeconomic policy pursued by the individual Member States. The close links between the national economies within the single market and the safeguarding of the internal stability of the single currency should encourage all policymakers to respect the mutually agreed rules, in particular those relating to the maintenance of durably sound public fi nances. The diffi culties in agreeing on the application of the Stability and Growth

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Pact in respect of Germany and France last year show that those rules are not only relevant in bad times, but must equally be geared to creating the necessary budgetary margins in good times, so that later setbacks can be absorbed without signifi cant damage. In addition, more appropriate and forward-looking surveillance procedures should ensure that such a symmetrical approach is indeed effectively implemented. In view of the pressure that the ageing population is likely to place on the budget, a rapid return to structurally balanced public fi nances becomes all the more essential, even from a purely national viewpoint.

16. Preserving sound foundations for the European internal market and the monetary union will be particularly crucial as the accession of ten new Member States is likely to present the EU with major new challenges, both economic and institutional. It is indeed important for enlargement to take place without jeopardising the main features of the European welfare model. At microeconomic and sectoral level, the integration of those countries will undoubtedly entail some adjustments and shifts, requiring appropriate support, but overall it should result in a win-win situation. As purchasing power in those countries catches up and their markets become more accessible, European fi rms are set to expand their potential outlets while the continuing dismantling of trade barriers and harmonisation of the regulatory framework will gradually create a level playing fi eld. The past decade has already brought a strong expansion in trading links between the old and new EU Member States. That also applied more particularly to Belgium, where trade with the accession countries has generated a net surplus year after year, averaging around 0.4 p.c. of GDP.

Economic situation in Belgium

1. Since Belgium has a very open economy, domestic economic developments were inevitably affected by those in the rest of the world, a dominant factor being the feeble growth elsewhere in the euro area during the past year. The fact that domestic product declined or at best stagnated in three of Belgium’s neighbouring countries, which are also its main trading partners – namely Germany, France and the Netherlands – was an additional handicap. Owing to the great importance of foreign trade for the Belgian economy – and the relatively high import content of Belgian exports must also be taken into account here – the substantial appreciation of the euro in the past two years has also had an unmistakable impact on the level of activity. But it should be remembered that since the introduction of the euro the bulk of Belgium’s foreign trade, i.e. trade with the other euro area countries, is no longer impeded in any way by exchange rate variations. While the effective euro exchange rate, weighted by trade between the euro area and non-member countries, has risen by a total of 21 p.c. over the past two years, the appreciation averaged just 5.7 p.c. for the Belgian economy taken on its own, i.e. allowing for its trade with the other euro area countries. Of course, for some businesses and sectors which have to compete mainly with the dollar area, the more expensive euro may still be a major drawback, but on the other hand the appreciation of the euro also has some positive effects on domestic demand via the accompanying improvement in the terms of trade.

2. All in all, it is therefore hardly surprising that Belgium witnessed subdued economic growth for the third consecutive year. Such a protracted period of weak growth has not been seen since the early 1980s. In comparison with the euro area as a whole, however, the Belgian economy stood up rather well, and the growth of activity actually accelerated slightly from 0.7 p.c. in 2001 and 2002 to 1.1 p.c. in 2003. Nevertheless, in the course of the year under review, Belgium and the euro area produced broadly similar growth profi les, with activity remaining more or less fl at in the fi rst half year and a marked upturn from the third quarter onwards.

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3. In contrast to the previous year, household spending in particular proved to be a signifi cant factor bolstering growth, while the pace of business investment and public spending also accelerated. Since the volume growth of exports, at 1.5 p.c., was considerably outstripped by imports, net exports made a negative contribution to growth for the second consecutive year, totalling around 1.3 percentage points of GDP in 2003. After a marked weakening of exports in the second half of 2002 and early 2003, the revival in activity on Belgium’s main markets from the second quarter generated a clear recovery in export volumes, which continued until the end of the year according to the business indicator relating to foreign orders.

4. Following two years of quite mediocre growth, real private consumption expanded by 1.7 p.c. during the year under review, while investment in housing also picked up. This strengthening of private spending in Belgium is all the more remarkable in that it occurred against the background of a very modest rise of 0.7 p.c. in households’ real disposable income, primarily refl ecting the limited rise in the total wage bill and the decline in property income, though on the other hand it benefi ted from the tax reforms of recent years. Overall, wavering consumer confi dence therefore appears to have had less infl uence on spending than in preceding years, since, after rising for two successive years, the private savings ratio dropped by 0.8 percentage point in 2003.

5. After a steep fall of 2.7 p.c. in 2002, gross fi xed capital formation by businesses showed a 2.2 p.c. expansion in volume terms during the year under review. At least the fi nancial conditions for a recovery in investment were in place, with a marked improvement in operating margins and a less onerous debt position for Belgian fi rms in comparison with other European countries, as well as generally favourable external fi nancing conditions. Throughout the year, the progress of business investment was rather irregular, however, probably indicating that lingering uncertainty over sales prospects and low capacity utilisation were still inhibiting the propensity to invest.

6. By resorting to fl exible working arrangements, which have come into wider use in recent years, fi rms were able to moderate for some time the impact which the slowdown in activity had on jobs. However, the longer the weakness of economic activity persisted, the more its effects also became apparent on the labour market, prompting a sharp fall in employment from mid 2002 onwards, averaging around 0.4 p.c. in 2003. Taking the year under review as a whole, net job losses totalled 15,000, which was around 2,000 more than the previous year’s fi gure. Since at the same time the labour force expanded sharply, by 31,000 persons, owing to the combined effects of the continuous rise in the population of working age and the increase in the activity rate – partly as a result of the measure obliging older unemployed persons to remain available on the labour market –, this led to an increase of 47,000 in the number of jobless persons, the biggest rise since 1993. Thus, in the space of two years, the harmonised unemployment rate has risen from 6.7 p.c. in 2001 to 8 p.c. in 2003. According to the harmonised European defi nitions, the employment rate in Belgium fell from 59.9 p.c. of the population of working age in 2002 to 59.5 p.c. in 2003. Although that rate is still around 2.5 percentage points higher than in 1997, the year in which the European employment strategy was launched, it remains signifi cantly below the European average which – according to the latest available data – stood at 64.2 p.c. in 2002, with the gap in relation to the EU growing even wider in the past few years.

7. Following steep increases of 3.9 p.c. in 2001 and 5 p.c. in 2002, the rise in labour costs per hour worked in the private sector slowed to 2.1 p.c. in 2003. Thus, the course of those costs since 1996 has broadly kept in line with that in the three main neighbouring countries and in the euro area as a whole. In that respect, it cannot be said though that the trend in labour costs has so far helped to eliminate the jobs defi cit in comparison with the European partner countries.

8. Since productivity in Belgium has risen more slowly than in the main neighbouring countries in the past few years, a growth differential of around 4 percentage points persisted at the end of the 1996-2003 period in terms of unit labour costs. However, owing to the cyclical rise in apparent labour productivity, unit labour costs did not increase any further during the year under

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review, which helped fi rms to restore their operating margins. If that trend continues, it is a factor which may help to ensure that the revival in economic activity rapidly leads to the creation of more jobs.

9. The generally moderate rise in labour costs combined with the weak pressure of demand and the appreciation of the euro also helped to keep infl ation at a low level in Belgium. In addition, a number of measures in the fi eld of administered prices, such as the abolition or reduction of the television and radio licence fee, exerted temporary downward pressure on consumer prices. As a result, the annual rate of increase in consumer prices was just 1.5 p.c., slightly lower than the year before and 0.6 percentage point below the average for the euro area. However, without the exceptional factors mentioned, both the overall infl ation picture and the underlying trend in infl ation would have been much closer to those in the euro area.

10. Barring any unexpected shocks, the pace of growth can be expected to quicken in Belgium, too, as the international economy continues to recover. Provided that the country’s main export markets expand suffi ciently and competitiveness is not further impaired by a continuing appreciation of the euro, net exports are likely to deliver a modest but positive contribution to growth again. The rallying of profi t margins, favourable fi nancing conditions and the growing need for replacement investment could further encourage gross fi xed capital formation, while private consumption will probably succeed in maintaining its current growth rate, supported by the rise in real incomes, the effects of the personal income tax reform and a gradual improvement in the labour market situation.

Monetary policy and financial stability

1. After fi ve years of the euro, the common monetary policy has certainly been successful. Despite a highly uncertain economic and fi nancial environment and successive price shocks, infl ation has been kept in check, infl ation expectations remained low and the new currency engendered considerable confi dence. Viewed from the medium-term perspective taken by the Eurosystem in conducting its monetary policy, the monetary conditions for durable growth could therefore be maintained. Moreover, the credibility acquired by the European Central Bank (ECB) allowed interest rates to be reduced to a historically low level, so that monetary policy has made its own contribution towards stabilising economic activity over the past three years.

2. Although its monetary policy strategy proved generally apt, the ECB Governing Council did not want to ignore the controversy that it had sometimes caused, particularly in academic and fi nancial circles but also in the macroeconomic dialogue with the European social partners. In May 2003, following an in-depth evaluation, the Governing Council therefore clarifi ed two elements of its strategy which occasionally caused communication problems.

3. Thus, the Council confi rmed the quantitative defi nition of the price stability objective, but at the same time stated that in the medium term it aimed to maintain the increase in consumer prices in the euro area close to the upper limit of 2 p.c. per annum announced in 1998. There were three reasons for spelling this out. First, the Governing Council wished to emphasise its intention to build in an adequate safety margin at all times as a protection against any risks of defl ation. In a defl ationary situation, there is a danger that monetary policy may become less effective as nominal interest rates cannot be cut below zero, whereas in such circumstances the central bank actually needs to be able to cut the real interest rate further in order to stimulate demand and combat defl ationary pressures. In addition, tolerating low but positive infl ation fi gures for the euro area as a whole limits the risk of persistently falling prices in some Member States, which

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could have unwelcome consequences if certain prices and incomes display nominal downward rigidity. And fi nally, the Governing Council wished to take account of potential measurement errors in the index of consumer prices, caused in particular by the diffi culty of allowing for the improvement in the quality of some products, so that true price increases may be slightly overstated. The monetary policy objective thus defi ned is actually in line with the interpretation which fi nancial market participants had apparently already placed upon it.

4. The Governing Council also clarifi ed the nature and scope of the two pillars on which it bases its assessment of the risks to price stability. The monetary analysis – which encompasses far more than a mere comparison of the growth of the broad monetary aggregate M3 against a reference value and also examines, for example, developments in the components and counterparts of broad money, such as lending – serves primarily as a means of assessing medium- to long-term infl ationary trends and then comparing them with the short- to medium-term indications coming from economic analysis. To properly refl ect this approach, the introductory statement made by the ECB President at the monthly press conferences has been restructured. Since May 2003 it starts with the economic analysis, followed by the monetary analysis, and ends by cross-checking the two perspectives to arrive at an overall, coherent assessment of the risks to price stability.

5. In 2003, on the basis of this thorough analysis of all the available information, the Governing Council decided to continue the interest rate reduction process which had already begun. At its meetings on 6 March and 5 June the Council took the view that the persistently gloomy economic climate and the appreciation of the euro minimised the threat of infl ation – albeit with no signifi cant risk of defl ation – and that the abundance of money, due mainly to a strong preference for liquidity induced by the fi nancial turbulence, was not jeopardising price stability. The two interest rate cuts which the Council therefore decided to make, brought interest rates on the main refi nancing operations down to the low level of 2 p.c. No further interest rate adjustments ensued because opposing factors meant there was no fundamental change in the outlook for prices : on the one hand, the burgeoning recovery and a degree of persistence in infl ation could well lead to an upward revision in expected infl ation; but on the other hand, the appreciation of the euro had a moderating though admittedly delayed effect on prices by reducing import costs and exerting downward pressure on prices in the sectors exposed to international competition.

6. The Eurosystem’s monetary policy therefore helped to bolster domestic demand, as the real short-term interest rate had been reduced to zero. Such extremely low interest rates had not been seen in most euro area countries since the 1970s. In June 2003 long-term interest rates also reached a low point, but they have risen slightly since then, driven by the global improvement in growth prospects and deteriorating public fi nances, although remaining below the level of the preceding three years.

7. The low level of both short- and long-term interest rates has enabled fi rms to reduce their fi nancial burden, many of them having contracted heavy debts in the late 1990s in order to expand their production capacity or to fi nance acquisitions. Thus, the reduction in interest charges and measures to save on other operating costs allowed fi rms to restore their profi tability, which was refl ected in rising share prices.

8. Thanks to the stock market recovery, fi nancial institutions, and more particularly those which had invested heavily in equities, were able to make good part of the capital losses suffered in preceding years. Thus, in 2003 the insurance institutions were back in profi t, while banks enjoyed a boost to their market activities. In the EU, however, where economic growth remained anaemic, the increase from this source of revenue only partly cushioned the stagnation in commission and interest income earned by credit institutions. In Belgium, for example, the banks’ gross operating result declined for the third consecutive year, falling by around 2 p.c. during the fi rst three quarters of 2003.

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9. Nevertheless, Belgian fi nancial institutions remained sound. Banks managed to maintain their solvency ratio at an average of 13 p.c. of their equity capital, well in excess of the minimum capital adequacy stipulated by the Basle Committee on Banking Supervision. According to the available partial data, insurance companies also managed to maintain their solvency in 2003. Moreover, the fi nancial institutions further refi ned their internal risk management systems and made greater use of the various risk transfer instruments offered by the fi nancial markets. However, these techniques do entail a cost, and that may weigh on the profi tability of fi nancial institutions. For instance, the narrowing of the Belgian banks’ interest rate margin in 2003, occurring against the background of interest movements which tended to favour their intermediation activity, might be largely attributable to the transactions which banks arranged to hedge their interest rate positions.

10. This confi rms that both the supervisory authorities and the market players themselves have a need for adequate information in order to assess the performance of the fi nancial institutions in the context of the risks which they incur. This guiding principle is an integral part of the forthcoming new Basle capital accord, which provides for an individual approach to the risk profi le of each bank and also urges the dissemination of reliable information so that market discipline can play its full role in safeguarding fi nancial stability.

11. Both nationally and internationally, the dialogue with the fi nancial market participants needs to be supported by proper coordination between the respective authorities. To that end, the institutional set-up for the supervision of the Belgian fi nancial sector was recently modifi ed. On 1 January 2004 the Banking and Finance Commission was merged with the Insurance Supervision Offi ce to form the new Banking, Finance and Insurance Commission (BFIC). There will be close cooperation between the Bank and the BFIC, so that the Bank’s key functions in the macroprudential supervision of the fi nancial markets can be integrated more effectively into the overall framework of supervision. The Bank has also been given a coordinating role, which it performs primarily via a new Financial Stability Committee set up in 2003 and chaired by the Governor of the Bank. A protocol concluded between the Bank and the BFIC sets out the areas in which the two institutions will pool their resources in order to pursue certain activities jointly.

Challenges for economic policy in Belgium

1. The hesitant and at times stagnating activity of the past few years has inevitably taken its toll in Belgium, too, although the effect has been less acute than in some other European countries. The prudent macroeconomic policy and the efforts made in recent years to safeguard the restored budget balance have undoubtedly contributed to this. That rather favourable starting position must not be put at risk. The fundamental challenges are the same : how to safeguard the achievements of the European welfare state in an increasingly integrated global economy, and in the context of an ageing population? Everywhere there is a growing awareness that a spontaneous economic revival will not be suffi cient : what the European economies need more than ever is fundamental reforms in order to enhance their growth potential and resilience.

2. Here and there, signs are emerging of growing willingness to add new momentum to the reform process, even if this means that sometimes diffi cult adjustments will be needed at fi rst. Some European countries have already made substantial progress with the implementation of the Lisbon programme which, via growth initiatives and structural reforms, aims to make the European Union into a more dynamic and innovation-centred economy with a strong employment potential, while others have recently announced major new plans. It is therefore crucial that Belgium, too, maintains the necessary resolve to complete the reform agenda, which on many fronts will require thorough action.

21


Labour market policy

3. The structural weakness that continues to affl ict the Belgian labour market remains a major problem. It is therefore commendable that jobs are high on the list of priorities of the government’s programme. Moreover, the national Employment Conference launched in the autumn of 2003 has given employers, unions and the federal and regional authorities the opportunity to make a thorough diagnosis of the employment issue, to investigate new angles for policy and to formulate a number of conclusions and policy recommendations. Among the concrete results of that conference there is the clear policy objective of creating an additional 60,000 jobs by 2007, through discretionary measures. Nevertheless, more will be needed to close the still widening employment rate gap compared to the European average, in particular, efforts to integrate both job-seekers and persons not economically active into the labour process, e.g. by providing suitable support and guidance plus training opportunities.

4. As a result of ageing, the population of working age will inevitably decline from 2010 onwards. If the current trends in labour market participation continue, that will also mean a substantially slower rise or even a fall in the labour force, with adverse consequences for future growth prospects and the sustainability of the social security system. If the currently under-used labour reserves are not increasingly mobilised, there is not only a clear risk that the limited labour supply will ultimately impede sustained economic growth, but also that the dependency ratio between the active and the non-active population may reach such proportions that it becomes very diffi cult to fund an adequate level of welfare provision.

5. Measures to avert and remedy structural unemployment, in particular, will consequently need to be supplemented by bringing in non-active persons and by measures to boost the activity rate of the over 55s. Some categories, such as non-European immigrants and young people with low skills, are still in a precarious position on the labour market, which hampers their integration into the regular workforce, and makes them more prone to unemployment than other groups. Nevertheless, in Belgium it is in the over 55 age group that non-participation is most acute, with only about a quarter still at work, compared to an average of 40 p.c. in the European Union. Sometimes, individuals deliberately choose not to participate, but the reason often also lies in the lack of adequate incentives, on both the demand and the supply side, for their lasting inclusion in the labour force. Thus, the existing tax and social legislation still contains a number of “inactivity traps” which often make it insuffi ciently worthwhile to continue working or to actively look for a job, and which dissuade fi rms from taking on or retaining certain categories of workers.

6. There is also more potential for job creation in the non-profi t sector and household services, where – mostly for fi nancial reasons – there is currently still a great deal of unsatisfi ed demand, or people tend to resort to undeclared work. The system of service vouchers devised by the government may provide a partial solution here.

7. It is also vital to improve the matching of supply and demand on the labour market. More fl exible working arrangements and the development of appropriate social facilities may help to make it easier to combine working life with household duties and leisure, while offering fi rms the fl exibility of adjusting their use of labour in line with fl uctuations in their requirements. Measures which encourage the geographical mobility of workers and, more generally, make it easier to change jobs may help to absorb tensions on the labour market and limit the social impact of corporate restructurings, while also fostering the development of innovative activities. Furthermore, some population groups encounter diffi culties in fi nding or keeping a permanent job. People seeking work therefore need appropriate support and follow-up, not only in the search for a suitable job but afterwards as well. Reducing social security contributions is one way of increasing the incentive for employers to take on workers from groups at risk. Finally, proper training, both through the education system and via occupational training programmes,

22

is essential in order to match the quality of the human capital with the ever higher standards demanded by the knowledge economy, and to maintain the employability and productivity of workers throughout their working lives.

8. Keeping labour costs within bounds remains important for the job-content of growth and to safeguard competitiveness and price stability. The reductions in social security contributions can play a role here, provided they are not used to increase wages, and so long as they are compatible with a fi scal policy stance that ensures the maintenance of sound public fi nances and the sustainability of the social security system. However, this does not detract from the need to contain wage increases.

9. The economy’s production structure, investment expenditure and management quality are equally factors which determine business competitiveness. Nevertheless, in Belgium the cost aspect of competitiveness is fi rmly in the foreground, one reason being the relatively large weight of sectors which tend to operate as price takers on their markets. In the past, that led to strong pressure encouraging rationalisation, so that increases in labour productivity went hand in hand with staff cost reductions, achieved partly by shedding less productive workers. Without denigrating the need for sustained control over wage costs, greater emphasis on innovative activities in regard to both products and production processes, making it possible to penetrate knowledge-intensive or specialised market segments, could contribute towards relieving that pressure. For example, recent OECD surveys show that Belgium is still performing rather poorly in the production and use of information and communications technology (ICT). Although the share of the ICT sector in total value added generated by fi rms stood close to the OECD average in 2000, it was markedly lower than in some other European countries and especially the United States, with the gap being particularly pronounced for the industrial ICT sector. Internationally, Belgium also ranks low as regards the share of ICT in total business investment. Efforts to enhance the innovative capacity of the economy will have to be accompanied by the creation of an attractive climate for the employment of highly trained people.

Effi cient markets, a business-friendly climate and the development of the knowledge society

10. By improving the allocation of factors of production, structural reforms on the goods and services markets augment economic effi ciency and thus enhance the long-term growth potential of the economy as a whole even though, in the short term, such reforms may entail adjustment costs. The further opening up to competition of the ‘network’ industries, the relaxation of provisions which inhibit the creation or expansion of businesses and the reinforcement of competition policy still represent a particular challenge, despite the undeniable progress achieved recently. But elsewhere, too, a suffi ciently strong competitive base needs to be created for both industry and the services.

11. Growth potential is also determined by the scale and quality of investments and the effi ciency with which capital and labour are used in the production process. That is primarily a matter for the fi rms themselves, but the government can play a signifi cant role by fostering a business-friendly climate, encouraging funding via venture capital, facilitating business start-ups, minimising the administrative burdens, introducing transparent and stable regulation, and guaranteeing a high quality service. In this regard, the fi nancial sector also has a vital role to perform in ensuring an effi cient allocation of the available fi nancial resources. In particular, new and expanding businesses, which are generally dependent mainly on bank lending as a source of fi nance, must have ready access to the fi nancial institutions.

23


12. To strengthen the supply side of the economy, it is also important to maintain an effi cient public infrastructure and to step up the research and development effort. Belgian public investment has long been below the EU level, while spending on research and development, although slightly higher than the EU average, is still well short of the target of 3 p.c. of GDP set for 2010. That defi cit is most acute in the case of government-funded research. The European growth initiative launched last year could provide an important stimulus here. Both the European Commission and the Member States are being encouraged to redirect the existing expenditure, concentrating on investment in the trans-European network infrastructure, innovation, research & development and human capital, and to make maximum use of private sector resources in funding these projects.

13. A dynamic and innovative economy is not possible without a strong enterprise culture. On this point, too, Belgium does not do really stand up to international comparison, as is evident, for instance, from the relatively low percentage of entrepreneurs in the population, and the low start-up ratio. Apart from the structural and institutional factors already discussed, socio-cultural factors also play a decisive role in this respect. Entrepreneurship is primarily a question of mentality, requiring not just expertise, but also initiative, ambition and willingness to take risks. Widespread promotion of the enterprise culture in society, both via education and training and through various information channels and the media, could help to develop those attitudes, e.g. by providing training which offers practical experience, by encouraging creativity and innovation, by highlighting the social and fi nancial benefi ts of successful enterprise and relieving the stigma of failure, and more generally by cultivating a positive attitude towards entrepreneurs.

Sustainable public fi nances conducive to growth

14. In comparison with other European countries, Belgium coped well with the effects on public fi nances of the prolonged weakness of economic activity. While the average budget defi cit in the euro area grew from 0.9 p.c. of GDP in 2000 to an estimated 2.8 p.c. in 2003, the Belgian government budget ended in balance or with a small surplus for the fourth year in a row, last year the surplus being around 0.2 p.c. of GDP. However, that was only achieved thanks to the exceptional net result of non-recurring operations, such as the take-over of liabilities of the Belgacom pension fund, totalling some 1.5 p.c. of GDP. Accordingly, the government debt ratio fell by 5.4 percentage points in 2003 to reach 100.7 p.c. of GDP.

15. Although last year’s budget outcome once again benefi ted from the downward trend in the interest burden on the public debt, the effect of that was more than offset by both cyclical factors, such as higher unemployment expenditure and the shortfall in fi scal and parafi scal revenue, and structural factors such as reductions in fi scal charges and above-average growth in other primary expenditure, which came to around 2.8 p.c. at constant prices in 2003, against an average of 2.1 p.c. over the past ten years. This structural easing of fi scal policy is also evident from the movement in the primary budget surplus adjusted for cyclical effects and non-recurring factors; in 2003 that fi gure was estimated to have fallen by more than 1 p.c. of GDP.

16. In the present circumstances, there is no objection to a purely cyclical deterioration in the budget balance via the operation of the automatic stabilisers. Moreover, it is perfectly compatible with the Stability and Growth Pact, provided that during a subsequent cyclical upswing the same automatic stabilisers can operate to the full in the opposite direction. As economic growth gains momentum, it is therefore important to revert to the more ambitious consolidation targets outlined earlier, generating the structural surpluses needed to bring about a suffi ciently rapid reduction in the public debt and to provide greater scope for coping with the expected fi nancial repercussions of the ageing population.

24

17. Even though the budget targets were downgraded in the coalition agreement and the new stability programme, the aim now being to restore a surplus of 0.3 p.c. of GDP by 2007, strict budget discipline will still be required : assuming that revenues follow a normal pattern with no new measures, primary expenditure growth would need to be kept almost 1 percentage point below GDP growth. That will not be easy, remembering that in the past ten years – despite a determined effort at consolidation – growth of primary expenditure has slightly outpaced that of GDP. Furthermore, fi scal developments must be closely monitored and adjustments made where necessary, because in the case of a number of recent measures – corporation tax reform, regularisation of evaded taxes via a one-off declaration of fi nancial assets, tighter fraud control – the exact impact on the budget is not known in advance.

18. In addition, the government programme states that expenditure on health care can increase by 4.5 p.c. per annum at constant prices over the next four years, which is faster than in the past, since the average rise has been around 3 p.c. per annum over the past decade. In the longer term, such strong expansion cannot be maintained without jeopardising the essential consolidation of public fi nances, especially as the course now adopted is liable to increase still further the overall cost of the ageing population. Additional efforts must therefore be made as soon as possible to control costs and upgrade effi ciency in the health care sector.

19. The quality of government intervention is an increasingly decisive factor in competition, as an effi cient government goes hand in hand with good economic performance. It is therefore important to seek ways of activating the powerful levers available to the government, within the budget limits, to stimulate the growth potential of the economy : public investment in infrastructure, encouragement for research and development, taxes and social security contributions which are more conducive to employment and investment and, more generally, an unremitting effort to enhance the quality and effi ciency of public sector services.

20. The challenges facing the policymakers are therefore considerable. Further budget consolidation and debt reduction remain essential to create suffi cient scope in time to safeguard the prosperity and social protection of the population as ageing progresses. The fi rst requirement for achieving that consolidation is to fi nd a prompt substitute for the substantial one-off meassures which, in view of the effects of the cyclical downturn, were included in the 2003 and 2004 budgets. In addition, it will be vital to ensure that public fi nances derive maximum benefi t from the expected upturn of the Belgian economy as the international recovery unfolds. But the overriding concern must be to create a fi rmer structural base for the consolidation of public fi nances in the coming years, which will only be possible if the growth potential of the economy is durably augmented. None of this can be achieved unless signifi cant progress is made in closing the gap in terms of the employment rate. To that end, there is a greater need than ever for a future-oriented, broad social project, supported by all interest groups in society and all levels of policy-making.

Brussels, 28 January 2004

3

INTERNATIONAL ENVIRONMENT

1.1 Summary

The world economy continued to recover in 2003; growth accelerated, rising from 2.8 p.c. in 2002 to 3.3 p.c. Once again, it was led by the United States, but also unexpectedly by Japan, whose economic performance had been disap-pointing for the past ten years, while the Chinese economy

1. International environment

maintained its vigorous advance, acting as an engine for the entire region. However, Asia had to contend with the reper-cussions of the SARS epidemic, which weakened the rate of expansion of activity in the emerging countries of that continent. Finally, in the euro area economic growth slowed down overall, but during the year the indicators increasingly supported expectations of an imminent recovery.

TABLE 1 GROWTH OF THE WORLD’S MAIN ECONOMIES

(Percentage changes in GDP at constant prices compared to the previous year)

Sources : EC, IMF, OECD.(1) Percentages of world GDP in 2002, based on purchasing power parities.(2) Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Czech Republic, Slovakia, Slovenia.(3) South Korea, Hong Kong, Malaysia, Philippines, Singapore, Taiwan, Thailand.(4) Australia, Canada, Iceland, Norway, New Zealand, Switzerland, Turkey.

2001 2002 2003 p.m.Weight in the world

economy (1)

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 2.4 2.9 21.8

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.2 2.7 7.4

Euro area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 0.9 0.5 14.5

Other EU countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 1.8 1.7 3.8

EU accession countries (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 2.3 3.1 0.8

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 8.0 8.4 13.1

Emerging Asian countries, excluding Indonesia (3) . . . . . . . . . . . 1.5 4.8 3.3 5.6

Latin America, excluding Venezuela . . . . . . . . . . . . . . . . . . . . . 0.4 0.3 2.0 9.6

OPEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 2.1 2.5 4.9

Other OECD countries (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 2.8 1.7 4.3

Rest of the world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0 3.5 4.7 14.2

World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 2.8 3.3 100.0

4

The progress of economic activity in the main regions of the world was dominated by the geopolitical uncertainty prevailing in the Middle East. Thus, the world economic recovery which had started at the beginning of 2002 faltered at the end of that year as the threat of war in Iraq loomed larger. In spring 2003, in view of the swift resolution of that confl ict, the economic agents regained confi dence and the world economy revived.

In general, macroeconomic policies once again under-pinned activity and thus – taking account of the waning uncertainty – contributed to its recovery, especially in the United States. The authorities of that country in fact continued to pursue resolutely expansionary monetary and fi scal policies. The Federal Reserve’s key interest rate thus fell to its lowest level in forty-fi ve years, and was actually negative in real terms. Furthermore, the suc-cessive tax cuts bolstered private consumption, and the military confl ict in Iraq generated a strong rise in defence expenditure. Naturally, such a policy affected American public fi nances, which showed an even larger defi cit than in 2002. In Japan, too, the public defi cit once again increased, essentially because of a new series of fi scal incentives intended to stimulate business investment. The Bank of Japan several times upgraded the quantita-tive target for providing fi nancial institutions with ample liquidity at zero interest. However, it did not succeed in completely curbing the defl ationary tendencies confront-ing Japan for several years now. Finally, in the euro area, in view of the sluggishness of economic activity and the impact of the euro appreciation on the foreseeable price developments, the ECB pursued a accommodating policy, lowering its key rate on two occasions. On the budget front, the further deterioration in public fi nances in this region was due to the operation of the automatic stabilisers and to discretionary measures in certain large member countries.

As regards the movement in various categories of expenditure, the most striking feature was the renewed positive contribution made by business investment in the United States and Japan. Advantageous fi nancing terms together with growing profi t margins, more favourable demand forecasts and government incentives encouraged investment spending by businesses in those countries. In both nominal and real terms, long-term interest rates were down to extremely low levels by the start of the year under review. In the second half, long-term interest rates nevertheless began to edge upwards once it became clear that recovery was under way. At the same time, the spread between corporate bonds and benchmark government loans became narrower and share prices picked up after their fi rst quarter slide. Although some of these forces also operated in the euro area, they were

insuffi cient to persuade businesses to step up their invest-ment. In particular, the high debt levels of European fi rms and the lethargic demand during the major part of the year evidentlycontinued to represent major obstacles.

Oil prices, which had risen sharply in the run-up to the Iraq war, subsided from mid-March 2003 once a rapid end to the confl ict was in sight. However, there was renewed upward pressure from the summer, fuelled by the acceleration in global demand associated with the creation of strategic stocks, the problems affl icting Venezuela, Nigeria and Iraq in restoring their production capacity, and the restrictions on production introduced by OPEC, and particularly Saudi Arabia, from November onwards. This upward tendency was augmented by dealing on the fi nancial futures markets in crude oil and petroleum products. As an annual average, energy prices expressed in US dollars consequently increased by 14.4 p.c. in 2003, putting them 38.3 p.c. higher than the average for 1993-2002. Prices of food and indus-trial commodities also continued to rise during the year, the former by 8.3 p.c. and the latter by 17.3 p.c. These increases were due respectively to disappointing harvests owing to the summer drought and to the recovery of the world economy. Taking 2003 as a whole, the over-all index of prices of commodities and basic products increased by 14.3 p.c. in US dollars.

0

40

80

120

160

1991

1993

1995

1997

1999

2001

2003

0

40

80

120

160

CHART 1 PRICES OF BASIC PRODUCTS IN US DOLLARS

(indices 1990 = 100)

Source : HWWA.

Total

Industrial commodities

Food commodities

Energy commodities

5


The disequilibria in the current account balances became more marked. The current defi cit of the United States exceeded 500 billion dollars, thus reaching the threshold of 5 p.c. of GDP. Japan’s surplus grew slightly larger, while that of the emerging Asian countries practically doubled. On the other hand, the surplus on the current account of the euro area shrank considerably under the impact of the appreciation of the euro.

The continuing deterioration in the United States current account defi cit fuelled fears over its sustainability and the dangers – particularly for the on-going recovery of the world economy – of a sudden, uncontrolled correction in the dollar exchange rate which might result. These fears have grown more acute in recent years as the origin of the defi cit has undergone a fundamental change. Between 1995 and 2001, a period of “new economy” euphoria, the swelling defi cit was due partly to the expansion of gross fi xed capital formation by businesses, fi nanced to some extent by an infl ow of foreign capital in the form of direct investment and portfolio investments in equities. Since 2001, the gap between private sector savings and investments has dwindled so that, by 2003, the defi cit mainly refl ected the government fi nancing requirement. These two situations are not equivalent in terms of sustainability since, as a general rule, public spending does not increase a country’s growth potential to the same extent as business investment. In this situation, the combination of large current account and public defi cits – commonly known as “twin defi cits” – harbours the risk of reducing foreign investors’ willingness to fi nance the American economy’s ever-growing need for capital.

That is the context surrounding the marked weakening of the US dollar from May 2002, initially in relation to almost all the international currencies and then, from the autumn, principally against the euro. During the year under review, the euro began by continuing to strengthen against the dollar. Apart from the said imbalance on the external account, the geopolitical tensions caused by the military operations in Iraq and the mixed signals concern-ing the economic outlook in the United States were major factors here. In the light of more encouraging information on the trend in activity in the United States and less posi-tive signs concerning the economic situation in the euro area, the euro weakened slightly against the dollar in July and August, but after that the dollar resumed its down-ward trend not only against the euro but also against the other reference currencies. By the end of the year, the bilateral euro-dollar exchange rate was thus almost 39 p.c. above the January 2002 level; over the same period, the US dollar lost 20 p.c. of its value in effective, nominal terms.

The fact that the euro felt the greatest effects of the weakness of the American currency must be viewed in the light of the sharp depreciation suffered by the euro during the fi rst two years of its life. This resulted in a marked undervaluation of the euro, so that the cur-rency’s appreciation in 2002 and 2003 should be seen as a logical correction. As is evident from the chapter on the monetary policy of the Eurosystem, the value attained by the euro at the end of the year under review seems a more accurate refl ection of the euro area’s underlying economic fundamentals, whereas the currencies of other economies, particularly in Asia, appear undervalued. A number of countries in that region of the world which, incidentally, constitute the main counterpart of America’s external defi cit, continued offi cially or in practice to anchor their currency to the US dollar, in particular to pre-serve the competitiveness of their industry or, in Japan’s case, to ward off the defl ationary spiral and avoid crush-ing the fragile recovery which was under way. In view of the constant upward pressure on their currency, the central banks of several Asian economies, particularly the Bank of Japan and the People’s Bank of China, intervened on a massive scale in the foreign exchange markets and substantially enlarged their US dollar reserves. During the autumn meeting of the IMF and the World Bank, held in Dubai in September, G7 political leaders launched an appeal for greater exchange rate fl exibility, as that should help to ensure a fairer distribution of the burden of adjust-ing the dollar exchange rate. Since the appeal by the G7, China – which holds a key position in this issue – has still not modifi ed its policy while the Japanese yen has appreciated.

TABLE 2 CURRENT ACCOUNT BALANCES OF THE MAIN REGIONS OF THE WORLD (1)

(Billions of US dollars)

Source : OECD.(1) In principle, if the balance of payments figures for the various economies are

added together, they should be in balance overall, but in practice there is a large net deficit. However, owing to the scale of the gross flows of transactions recorded in the balance of payments, these figures frequently contain substantial errors.

(2) South Korea, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand.

2001 2002 2003

United States . . . . . . . . . . . . . . . –393.7 –480.9 –548.6

Japan . . . . . . . . . . . . . . . . . . . . 87.7 112.5 122.9

Euro area . . . . . . . . . . . . . . . . . 13.3 71.4 35.5

China . . . . . . . . . . . . . . . . . . . . 17.4 35.4 17.4

Emerging Asian countries (2) . . . 59.7 59.1 95.1

Other countries . . . . . . . . . . . . . 74.7 95.6 85.1

6

1.2 United States

Following a recession in the fi rst three quarters of 2001, the American economy began growing again. However, that growth weakened slightly at the end of 2002 before sprint-ing ahead from the second quarter of 2003, as the military confl ict in Iraq came to an end. Thus, GDP expanded by 2.9 p.c. overall in 2003, against 2.4 p.c. the previous year. This acceleration is largely due to reinforcement of the expansionary macroeconomic policy pursued since 2001.

All components of fi nal demand played a part in the expansion of economic activity, including – for the fi rst time since 2001 – investments and exports.

Household spending, which had been one of the engines of recovery in 2002, made a still greater contribution to the strong growth during the year under review. Private consumption remained buoyant and investment in hous-ing expanded strongly. Owing to the smaller rise in the real disposable income of households, the private sav-ings ratio which had risen signifi cantly the previous year dropped back in 2003, falling from 3.7 p.c. of disposable income to 3.4 p.c.

A number of factors bolstered household spending. First, individuals benefi ted from the progressive implementa-tion of the tax cuts by the federal government and the continuation of measures introduced previously. Next, the rise in share prices from the low point of October 2002 exerted a positive wealth effect for the fi rst time since 2000. Moreover, long-term interest rates, and hence the rates on mortgage loans, continued to fall during the fi rst half year, reaching a minimum level in June. Households therefore took advantage of this opportunity to renegoti-ate the fi nancial terms of their contracts. In addition, the property market was buoyant, as demonstrated by the continuing rise in house prices; this generated a positive wealth effect while enabling individuals to increase their mortgages for consumption purposes. Finally, consumer confi dence, which had continued to fall, slumping in March to its lowest point since November 1993, regained strength at the onset of the Iraq war and by April was back to its December 2002 level. The return to net job creation on the labour market during the year provided another boost.

Public consumption grew by 3.7 p.c. during the year under review, against 4.4 p.c. in 2002. The Iraq war effort placed a heavy burden on the federal budget, but on the other hand, the states and local authorities restricted their expenditure.

60

80

100

120

140

1999 2000 2001 2002 2003

60

80

100

120

140

CHART 2 BILATERAL EXCHANGE RATES AGAINST THE US DOLLAR

(Monthly averages, indices January 1999 = 100)

Sources : BIS, IMF.(1) Average exchange rate of the dollar against the currencies of 21 industrialised

countries and four emerging Asian countries, weighted according to their share in US foreign trade.

Euro

Pound sterling

p.m. Nominal effective exchange rate of the US dollar (1)

Chinese yuan

Japanese yen

2000 2001 2002 2003–60

–40

–20

0

20

40

602.5

2.0

1.5

1.0

0.5

0.0

–0.5

CHART 3 CYCLICAL PROFILE OF THE UNITED STATES

(Seasonally adjusted data ; percentage changes at constant prices against the preceding quarter, unless otherwise stated)

Sources : BEA, Conference Board, ISM.(1) Percentage deviations from the average for the period beginning in January 1994.

(right-hand scale)

GDP (left-hand scale)

Consumer confidence (1)

Business confidence (1)

7


Gross fi xed capital formation by businesses, which had dropped by over 5 p.c. in 2001 and 2002, increased by 2.3 p.c. in 2003. This expansion mainly concerned equip-ment and software. There had been excess investment in these items during the late 1990s, but the renewal of some items of equipment, particularly ICT items, could not be postponed any longer in view of their rapid obsolescence. US federal government incentives also helped to stimulate investment in ICT. Conversely, business investment in premises and other infrastructure stagnated, mainly because of the persistent weakness of production capacity utilisation rates.

Stocks made a negative contribution to the change in GDP in 2003. Stock building, which had been one of the main factors driving the recovery in 2002, continued but at a slower pace.

Exports of goods and services also produced an upturn during the year under review, boosted partly by the depre-ciation of the dollar and the strength of demand in East Asia. Nevertheless, they only grew by 1.4 p.c. whereas imports were up by almost 4 p.c. for the second consecu-tive year, driven by domestic demand which was stronger than foreign demand. In consequence, the negative con-tribution to GDP growth made by net exports of goods and services was down to 0.4 percentage point against 0.8 the previous year.

This decline in net exports triggered a further rise in the United States current account defi cit, especially as it was combined with a further deterioration in the terms of trade. For the fi rst time in US history, that defi cit thus reached 5 p.c. of GDP, a level equivalent to the public defi cit which meanwhile worsened rapidly.

Infl ation quickened its pace slightly during the year under review, mainly because of the higher cost of imported goods and services caused by the depreciation of the dollar. Prices of these imports, which had fallen in 2001 and remained more or less steady in 2002, rose by 4 p.c. in 2003. Nevertheless, there were two factors which counteracted the impact of this. On the one hand, unit labour costs in enterprises declined by a further 0.6 p.c. over 2003 as a whole. Productivity gains have in fact been substantial since the end of the recession, while compensation per employee in the business sector has continued to rise at a modest pace of around 2.5 p.c., as in 2001 and 2002. Also, demand has remained weak compared to supply. Thus, the capacity utilisation rate in industry as a whole, already well below the long-term average, declined further from 75.6 p.c. in 2002 to 74.9 p.c. in 2003.

The easing of fi scal policy continued during the year under review. The government defi cit expanded further in 2003, growing from 3.4 p.c. of GDP to 4.9 p.c., the highest fi gure since 1993. The cyclically adjusted primary balance, which had moved into defi cit in 2002 for the fi rst time since 1994, deteriorated still further by 2 per-centage points. As in the two preceding years, almost the whole of this deterioration was due to discretionary measures, the main one being the progressive imple-mentation of massive tax cuts, the cost of the military operations in Iraq and aid for the reconstruction of that country.

TABLE 3 ECONOMIC DEVELOPMENTS IN THE UNITED STATES

(Percentage changes compared to the previous year, unless otherwise stated)

Source : OECD.(1) Contribution to the change in GDP.(2) Ratio between the number of unemployed and the labour force.(3) Current balance expressed as a percentage of GDP.(4) Savings expressed as a percentage of disposable income.

2001 2002 2003

Expenditure at constant prices

Final domestic demand . . . . . . . 1.6 2.4 3.3

Final consumption expenditureIndividuals . . . . . . . . . . . . . 2.5 3.1 3.1

General government . . . . . 3.8 4.4 3.7

Gross fixed capital formationHousing . . . . . . . . . . . . . . . 0.3 3.9 8.5

Enterprises . . . . . . . . . . . . . –5.2 –5.7 2.3


Change in stocks (1) . . . . . . . . . . –1.4 0.7 –0.2

Net exports of goods and services (1) . . . . . . . . . . . . . . . . –0.2 –0.8 –0.4

Exports . . . . . . . . . . . . . . . . . –5.4 –1.6 1.4

Imports . . . . . . . . . . . . . . . . . –2.9 3.7 3.6

GDP . . . . . . . . . . . . . . . . . . . . . 0.3 2.4 2.9

Labour market

Employment . . . . . . . . . . . . . . . –0.1 –1.2 0.0

Unemployment (2) . . . . . . . . . . . 4.8 5.8 6.1

Prices and costs

Consumer prices . . . . . . . . . . . . 2.8 1.6 2.3

Unit labour costs in enterprises . . 2.1 –1.7 –0.6

Prices of imported goods and services . . . . . . . . . . . . . . . . . –2.9 0.3 3.9

Terms of trade . . . . . . . . . . . . . 2.2 –0.6 –1.6

Balance of payments

Balance of current transactions (3) –3.9 –4.6 –5.0

p.m. Private savings ratio (4) . . . . 2.3 3.7 3.4

8

Monetary policy also remained expansionary throughout the year under review. Furthermore, at the end of June it was decided to make an additional cut in the federal funds target rate, bringing it down from 1.25 to 1 p.c., the lowest level since 1958. The main reason which the Federal Open Market Committee (FOMC) gave for its decision was that an unwelcome fall in infl ation was more cause for concern than renewed price increases. It also saw a need for additional support for activity since the economy had yet to produce sustained growth. The FOMC made no further changes to its rates after that, but placed less emphasis on the risk of defl ation.

During the fi rst half year, the geopolitical tensions and fears of a prolonged economic slowdown combined with downward adjustments to infl ation forecasts, and even concern over the potential risk of a fall in general price levels, also led to lower nominal long-term interest rates, be it the rates on benchmark bond loans or those on mortgage loans. In the fi rst quarter, the decline in bond rates was also encouraged by a fl ight into qual-ity, as equities were less in demand. Long-term rates reached a low point in June before rebounding by more than one percentage point at a time when signs of eco-nomic recovery were multiplying and fears of defl ation had faded.

1995

1997

1999

2001

2003

–6

–4

–2

0

2

–6

–4

–2

0

2

CHART 4 FINANCING BALANCE OF GENERAL GOVERNMENT AND CURRENT ACCOUNT BALANCE OF THE UNITED STATES

(Percentages of GDP)

Source : OECD.

Current account deficit on the balance of payments

Financing requirement (–) or capacity of general government

–2

–1

0

1

2

3

4

5

80

90

100

110

120

130

140

150

1995

1997

1999

2001

2003

1995

1997

1999

2001

2003

–4

–3

–2

–1

0

1

2

3

4

–4

–3

–2

–1

0

1

2

3

4

0

1

2

3

4

5

6

7

8

1995

1997

1999

2001

2003

0

1

2

3

4

5

6

7

8

CHART 5 MACROECONOMIC POLICIES IN THE UNITED STATES

Sources : BIS, OECD, NBB.(1) Interest rate on American Treasury bonds with a residual term of ten years.(2) Interest rate on three-month euro deposits in US dollars less the percentage

change in the consumer price index compared to the corresponding month of the previous year.

(3) Weighted average of exchange rates for the US dollar vis-à-vis the currencies of twenty-one industrialised countries and four emerging Asian countries, adjusted to take account of the relative movement in consumer prices.

INTEREST RATES

MONETARY CONDITIONS(monthly averages)

Federal fund target rates (end-of-month data)

Benchmark loan rates (1) (monthly averages)

Real three-month interest rate (2)

(left-hand scale)

Real weighted average exchange rate (3) (index 1990 = 100) (right-hand scale)

CYCLICALLY ADJUSTED PRIMARY BALANCE OF GENERAL GOVERNMENT(percentages of GDP)

9


As in the previous year, the depreciation of the dollar in real terms and the overall decline in real short-term inter-est rates both contributed to a further easing of mon-etary conditions in the United States. The real interest rate remained consistently negative from October 2002 onwards.

1.3 Japan and emerging Asian economies

1.3.1 Japan

The Japanese economic recovery which had begun early in 2002 continued in 2003, borne along by the expansion of private consumption and business investment. Exports also provided support for the recovery, especially in the second half of the year, once the doubts over the war in Iraq and the SARS epidemic had ebbed away. On an annual basis, GDP grew by 2.7 p.c. in 2003, one of the best fi gures for the past twelve years, a period in which the Japanese economy has on average achieved only dis-appointing growth of around 1 p.c. per annum.

Having already expanded strongly in 2002, Japanese exports showed a further marked rise of 7.5 p.c. in 2003. This partly refl ects the growing importance of Asia, and especially China, for Japanese export sectors. China has in fact become Japan’s second largest external market after the United States. Although international geopolitical tensions put a serious brake on the expansion of exports in the fi rst half of the year under review, net exports of goods and services once again produced a substan-tial positive contribution towards GDP growth during that same period, as the SARS epidemic prompted the Japanese to cut their expenditure on foreign travel. Over the year as a whole, the contribution of net exports thus totalled 0.5 p.c. However, the current account surplus remained more or less unchanged in proportion to GDP, owing to the negative infl uence of the deterioration in the terms of trade.

Having slowed in 2002, fi nal domestic demand also expanded strongly by 2 p.c. in 2003. In particular, fi rms invested heavily in fi xed capital, encouraged by the improvement in the growth prospects, the low fi nancing costs and new tax concessions. Share prices which, in Japan, had plummeted in April to their lowest level since the beginning of the 1980s, subsequently rebounded strongly, and long-term interest rates remained at an historically low level. The recovery in profi t margins and strengthening business confi dence, indicating that corpo-rate restructurings had fi nally begun to bear fruit, at least

in certain branches of manufacturing industry, also seem to have had a favourable effect on investment. In all, gross fi xed capital formation by businesses expanded by 10.3 p.c. in 2003, after a 4.7 p.c. fall the previous year.

Although employment was unchanged and nominal wages showed only a small increase of 0.3 p.c., the real disposable income of households was 1.9 p.c. higher in 2003 owing to a further fall in general price levels. Yet this strong increase in purchasing power compared to previ-ous years did not persuade the Japanese public to speed up their consumption expenditure, which continued to grow at more or less the same rate of 1.1 p.c. in 2003. Nonetheless, this does indicate that the steady reduction in the household saving ratio, which has long under-pinned the Japanese economy, has been halted.

The expansion of public consumption slowed down from 2.3 p.c. to 1.6 p.c., and public investment was cut once again. In view of the massive budget defi cits of recent years, and hence the ballooning public debt, there is an increasingly urgent need to control public expenditure.

The clear economic recovery did attenuate somewhat the defl ationary pressure which has affl icted Japan since 1998, but could not remove it altogether. The decline in consumer prices was perpetuated by the continuing reduction in unit labour costs in enterprises, since labour

–2

–1

0

1

2

3

4

–5

0

5

10

2000 2001 2002 2003

CHART 6 CYCLICAL PROFILE OF GDP AND THE MAIN CATEGORIES OF EXPENDITURE IN JAPAN

(Seasonally adjusted data, percentage changes at constant prices compared to the previous quarter)

Source : OECD.

GDP

Final domestic demand

Exports of goods and services (right-hand scale)

(left-hand scale)

10

productivity had risen by considerably more than nomi-nal wages in 2003. In addition, Japan is stepping up its imports of cheap consumer goods from the emerging Asian economies : in particular, imports of Chinese prod-ucts have soared in the past decade. That trend is also due to the large-scale relocation of part of their production by Japanese fi rms. However, the impact of defl ationary pres-sures on consumer prices was partly concealed in 2003 by the rise in prices of certain volatile components such as

oil and unprocessed food, in consequence of the adverse weather conditions, and by the increase in personal health care contributions. These special factors account for just over half of the slowdown in the rate at which consumer prices were falling, from 0.9 p.c. in 2002 to 0.2 p.c. in 2003.

Japan’s macroeconomic policy remained strongly expan-sionary during the year under review. Thus the cyclically adjusted public defi cit increased by 0.6 percentage point to reach 6.9 p.c. of GDP, and the Bank of Japan continued to inject still larger amounts of liquidity into the fi nancial markets at zero interest.

General government’s fi nancing requirement increased further in 2003, rising from 7.1 to 7.4 p.c. of GDP. This deterioration is entirely attributable to additional tax cuts worth 1,800 billion yen, or around 0.4 p.c. of GDP, intended mainly to stimulate business investment. On the other hand, the Japanese government managed to achieve its aim of freezing primary expenditure at the 2002 level. At the end of 2003, the gross public debt totalled 154.6 p.c. of GDP, against 147.3 p.c. a year earlier.

TABLE 4 ECONOMIC DEVELOPMENTS IN JAPAN


Source : OECD.(1) Contribution to the change in GDP.(2) Ratio between the number of unemployed and the labour force.(3) Current balance expressed as a percentage of GDP.(4) Savings expressed as a percentage of disposable income.

2001 2002 2003


Final domestic demand . . . . . . . 1.1 –0.2 2.0



Gross fixed capital formationHousing . . . . . . . . . . . . . . . –5.4 –4.8 –1.9

Enterprises . . . . . . . . . . . . . 1.0 –4.7 10.3

General government . . . . . –4.1 –4.9 –7.0

Change in stocks (1) . . . . . . . . . . 0.0 –0.4 0.2

Net exports of goods and services (1) . . . . . . . . . . . . . . . . –0.7 0.7 0.5

Exports . . . . . . . . . . . . . . . . . –6.0 8.1 7.5

Imports . . . . . . . . . . . . . . . . . 0.1 2.0 4.5

GDP . . . . . . . . . . . . . . . . . . . . . 0.4 0.2 2.7

Labour market

Employment . . . . . . . . . . . . . . . –0.5 –1.3 –0.1

Unemployment (2) . . . . . . . . . . . 5.0 5.4 5.3

Prices and costs

Consumer prices . . . . . . . . . . . . –0.7 –0.9 –0.2

p.m. Deflator of final consumption expenditure of individuals . . . . . . . . . . . –1.5 –1.5 –1.4

Unit labour costs in enterprises . . –1.7 –3.2 –2.3

Prices of imported goods and services . . . . . . . . . . . . . . . . . 3.0 –1.9 –1.5

Terms of trade . . . . . . . . . . . . . –1.6 0.1 –1.9

Balance of payments

Balance of current transactions (3) 2.1 2.8 2.9


1995

1997

1999

2001

2003

–9

–6

–3

0

3

6

0

20

40

60

80

100

120

140

160

CHART 7 FINANCING REQUIREMENT OF GENERAL GOVERNMENT AND GROSS PUBLIC DEBT IN JAPAN


Source : OECD.

Financing requirement (left-hand scale)

Gross public debt (right-hand scale)

11


Preoccupied by the stability of the fi nancial system and by the persistence of the defl ationary situation in which the Japanese economy was bogged down, the Bank of Japan continued its unorthodox policy of providing ample liquidity at zero interest, launched in September 2001. At the same time, it systematically raised the target for the outstanding amount of the banks’ current accounts on its books, increasing it to 32,000 billion yen from October. In order to inject liquidity into the economy, it initially con-fi ned itself to buying Japanese government bonds totalling 1,000 billion yen, and later, from 2002, 1,200 billion yen per month, which corresponds to roughly one-third of the general government fi nancing requirement. In response to a renewed slide by share prices from mid 2002, and espe-cially to avert any adverse effects which this might have on the balance sheet structure of the banks, which hold large share portfolios, the Bank of Japan began acquiring equities on 29 November 2002. The maximum amount of these transactions was raised from 2,000 to 3,000 billion yen on 25 March 2003. In addition, in July 2003 the Bank of Japan further expanded the range of securities which it acquires from credit institutions, now including securi-ties covered mainly by SME instruments or loans. This move could make it easier to fi nance that type of busi-ness. Finally, the central bank intervened on the foreign exchange markets for a total of around 20,000 billion yen. This not only curbed the appreciation of the yen, it also widened the monetary base.

The fi rst signs that defl ationary pressure on prices was easing aroused fears that the Bank of Japan might alter its monetary policy stance. However, the central bank announced that its policy would remain unchanged until the danger of defl ation had defi nitely been averted.

The injections of liquidity under Japan’s monetary policy preserved the stability of the fi nancial markets and kept long-term interest rates at a fairly low level. The rate on benchmark government loans, which had fallen to an all-time low of 0.5 p.c. in June 2003, nonetheless began to rise again, in line with the trend in long-term rates in the other advanced economies. By the end of 2003, it had thus reached around 1.4 p.c. In contrast, and despite a further widening of the monetary base, the downward trend in lending by the banking sector totalling around 2 p.c. per annum was not reversed. This trend undoubt-edly refl ects the weak demand for business loans, but also and above all a certain reticence on the part of banks to grant risky loans, since the cumulative losses on bad debts have seriously eroded Japanese banks’ resources. Solving that problem therefore remained the top prior-ity for the Japanese government, which wished to make lending more effective as a channel for the transmission of monetary policy.

After numerous individual initiatives in favour of the fi nancial sector in previous years, with little success, the overall Programme for Financial Revival, launched in October 2002, which implies a more energetic approach, was already producing results in 2003. Thus, the volume of bad debts incurred by the big Japanese banks contracted slightly. Under this programme, a key role was also conferred on two new bodies, the Industrial Revitalisation Corporation and the Resolution and Collection Corporation, created to take over the banking sector’s bad debts and to offer assistance for fi rms in their restructuring process.

1.3.2 Emerging Asian economies

The outbreak of the epidemic caused by the SARS virus at the beginning of 2003 put a brake on the growth of GDP in the emerging Asian economies. Hong Kong, Taiwan and Singapore were particularly badly affected by this disease. Once the epidemic was under control, economic activity surged ahead from the third quarter. Over the year as a whole, real GDP growth in this region never-theless slowed slightly, dropping from 4.8 p.c. in 2002 to 3.3 p.c. in 2003. The notable expansion of exports to China was a major factor in this outcome, as the Chinese economy is increasingly occupying a key position in this region through expanding trade and investment fl ows. This development is opening up unprecedented markets for the emerging Asian economies, but it is also exposing them to keen competition from China.

During the year under review, the Chinese economy grew by 8.4 p.c., boosted by vigorous domestic demand, growing exports and a constant infl ow of foreign direct investment. The expansion of consumption slowed only temporarily in the second quarter as a result of the SARS outbreak. The continuing liberalisation of trade, which is connected with the fact that China joined the WTO in December 2001, in turn stimulated imports so that the trade surplus declined somewhat, falling to 1.3 p.c. of GDP in 2003, as opposed to 3 p.c. in 2002. General government investment and investment in housing con-tinued to expand strongly, as in previous years, but gross fi xed capital formation by businesses, mainly in the motor vehicle industry and the metallurgy, textiles and advanced technology sectors, also made a signifi cant contribution to growth in 2003. However, the profi tability of some of those investments is questionable, as is the quality of the loans used to fund them. To contain the expansion of lending, the People’s Bank of China therefore decided to exercise tighter control over the liquidity which it provides for the market by greater sterilisation of its foreign exchange interventions. During the year under review,

12

the persistent upward pressure on the Chinese currency caused the People’s Bank of China to intervene at regular intervals on the foreign exchange markets in order to maintain the link between the yuan and the US dollar and thus to preserve the competitiveness of the Chinese economy. As far as prices are concerned, the defl ation-ary pressure resulting from the expansion of production capacity and productivity gains, as well as the reduction in customs duties, was offset by such factors as the higher cost of commodities and food, so that consumer prices nudged upwards.

1.4 European Union

1.4.1 Euro area

ACTIVITY

In 2003, the expansion of activity slowed for the third con-secutive year in the euro area : GDP grew by only 0.5 p.c., against 0.9 p.c. in 2002. However, this deceleration masks a turnaround during the year. In the fi rst quarter, GDP stagnated compared to the last quarter of 2002, and it dipped slightly in the next quarter; in Germany, Italy and the Netherlands, GDP actually declined during both these quarters. After that, activity revived and the improvement was more or less general.

Final domestic demand remained rather feeble, but was not the cause of the growth slowdown, in contrast to the two preceding years.

Thus, private consumption expenditure grew faster than in 2002, by 1.4 p.c. against only 0.6 p.c. For one thing, the real disposable income of households increased slightly more than the previous year, mainly because of the lower infl ation. Also, the data available up to the beginning of 2003 reveal that house prices continued to soar in a number of euro area countries, and that may have stimulated consumption via the favourable

TABLE 5 GROWTH IN CHINA AND IN THE EMERGING ASIAN ECONOMIES

(Percentage changes in GDP at constant prices compared to the previous year)

Sources : IMF, OECD.

2001 2002 2003

China . . . . . . . . . . . . . . . . . . . . . . . 7.5 8.0 8.4

Emerging Asian countries, excluding Indonesia . . . . . . . . . . . . . . . . . . . 1.5 4.8 3.3

South Korea . . . . . . . . . . . . . . . . 3.1 6.3 2.7

Hong Kong . . . . . . . . . . . . . . . . . 0.5 2.3 1.5

Malaysia . . . . . . . . . . . . . . . . . . . 0.3 4.1 4.2

Philippines . . . . . . . . . . . . . . . . . . 4.5 4.4 4.0

Singapore . . . . . . . . . . . . . . . . . . –2.4 2.2 0.5

Taiwan . . . . . . . . . . . . . . . . . . . . . –2.2 3.5 2.7

Thailand . . . . . . . . . . . . . . . . . . . . 1.9 5.3 5.0

TABLE 6 ECONOMIC DEVELOPMENTS IN THE EURO AREA


Sources : EC, OECD.(1) Contribution to the change in GDP.(2) Ratio between the number of unemployed and the labour force.(3) Current balance expressed as a percentage of GDP.(4) Savings expressed as a percentage of disposable income.

2001 2002 2003


Final domestic demand . . . . . . . 1.6 0.4 0.9



Gross fixed capital formationHousing . . . . . . . . . . . . . . . –1.6 –0.7 –0.3

Enterprises . . . . . . . . . . . . . 0.9 –3.4 –2.1


Change in stocks (1) . . . . . . . . . . –0.5 0.0 0.3

Net exports of goods and services (1) . . . . . . . . . . . . . . . . 0.6 0.5 –0.7

Exports . . . . . . . . . . . . . . . . . 3.4 1.6 –0.6

Imports . . . . . . . . . . . . . . . . . 1.9 0.2 1.4

GDP . . . . . . . . . . . . . . . . . . . . . 1.7 0.9 0.5

Labour market

Employment . . . . . . . . . . . . . . . 1.5 0.5 0.0

Unemployment (2) . . . . . . . . . . . 8.0 8.4 8.8

Prices and costs

Consumer prices (HICP) . . . . . . . 2.4 2.3 2.1

Unit labour costs in enterprises . . 2.4 1.8 1.9


Terms of trade . . . . . . . . . . . . . 0.8 1.4 0.8

Balance of payments

Balance of current transactions (3) 0.2 1.1 0.4


13


impact on household wealth. In fact, empirical research has shown that, overall, property prices in the euro area exert a positive infl uence on consumption. That infl uence is generally relatively modest, but may be more marked in certain Member States. In a climate of doubts over the economic recovery, exacerbated by international political tensions with Iraq, consumer confi dence fell in March 2003 to its lowest level in nine years, but an improvement subsequently set in once it appeared that the military confl ict with that country was unlikely to have any serious economic or geopolitical repercussions. Nonetheless, consumer confi dence remained rather sub-dued throughout the year, perhaps because households were concerned about the labour market situation and the deterioration in public fi nances. The private savings ratio thus fell only slightly in 2003, dropping from 15.1 to 15 p.c. of disposable income.

Investment remained a factor causing weakness in the euro area, even though – just as in the case of private consumption – the picture was slightly more favourable than the previous year. Investment in housing continued to decline in 2003 for the fourth successive year, but at a slower rate. This trend for the euro area conceals substantial differences between Member States : in some countries, housing construction continued to expand rapidly, whereas Germany recorded a further large fall, owing to the structural problems confronting the sector in that country, partly in the wake of a period of excess

investment in the former East Germany. Public investment grew by 2.2 p.c. against 0.4 p.c. in the previous year. In contrast, business investment declined further, albeit more slowly, by 2.1 p.c. against 3.4 p.c. in 2002.

The rate of production capacity utilisation in industry remained relatively weak, in view of the excess capacity built up in earlier years and the fl agging demand. On average, capacity utilisation rates actually declined in 2003. Up to July in the year under review, the confi dence of business leaders in the industrial sector continued to be affected by the mediocre sales prospects, but it later recovered. In the market services sector, which represents almost half the gross value added of the euro area, the restoration of confi dence came sooner, being apparent by April.

Gross fi xed capital formation by businesses was also hit by their fi nancial situation, which had seriously deteriorated in recent years as a result of excessive investment and costly acquisitions. The debt-equity ratio of non-fi nancial corporations thus remained rather high, even though an improvement was seen in the fi rst half of 2003. However, the associated fi nancing costs declined owing to the fur-ther fall in lending rates. The reduction in risk premiums on lower rated corporate bonds combined with a continu-ing cautious attitude by the banks towards their lending prompted non-fi nancial corporations to increase the volume of debt instruments issued during the year under review, though at the beginning of 2003 the outstanding total represented only 13 p.c. of those fi rms’ debts. Nonetheless, there may have been some improvement in lending conditions and in demand for credit.

–2

0

2

4

6

2000 2001 2002 2003

1.5

1.0

0.5

0.0

–0.5

CHART 8 CYCLICAL PROFILE OF GDP IN THE EURO AREA

(Percentage changes at constant prices)

Source : EC.(1) Seasonally adjusted data.

Compared to the corresponding quarter of the previous year (left-hand scale)

Compared to the previous quarter (1)

(right-hand scale)

–30

–20

–10

0

10

2000 2001 2002 2003–30

–20

–10

0

10

CHART 9 CONSUMER CONFIDENCE IN THE EURO AREA

(Seasonally adjusted data)

Source : EC.

Average January 1994-December 2003

14

During 2003, the change in stocks was also more favour-able than the previous year, making a positive contribu-tion of 0.3 percentage points to the growth of GDP.

Net exports were therefore the main factor responsible for the further deceleration in growth in the euro area in 2003 : gross exports by volume, which had continued rising in 2002, contracted by 0.6 p.c. whereas, after more or less stagnating, gross imports grew by 1.4 p.c. Overall, the contribution to growth made by net exports, which had been positive in 2002, became negative, totalling 0.7 percentage points.

The growth of exports had already come to an abrupt halt in the fourth quarter of 2002. After that, exports declined quarter on quarter during the fi rst half of the year under review, but recovered in the third quarter. On the one hand, the expansion of outlets of the euro area remained modest in 2003. In addition, the euro continued to strengthen, maintaining a trend which had started at the beginning of 2002. This reduced the price competi-tiveness of the euro area, although the region’s exporters tried to offset the effect by cutting their profi t margins. The appreciation of the euro also stimulated imports, as prices of foreign goods and services became more com-petitive on the European markets.

With the exception of Spain, and especially Greece, where activity once again expanded at a relatively sustained rate, all the Member States in the euro area recorded weak growth in 2003. In Ireland, GDP was up by a further 1.8 p.c., but for that country this rate of expansion is considerably slower than in previous years. In the other euro area countries, the increase in GDP was generally less than 1 p.c. Portugal and the Netherlands actually recorded a decline in activity. The German economy stag-nated once again. Overall, growth differentials diminished in the euro area.

LABOUR MARKET

As in previous years, employment had held up rather well in the euro area, in comparison with other phases of slackening economic growth. Nevertheless, while it had continued to expand in 2002, it practically stagnated from the beginning of the year under review. At fi rst, instead of fully compensating for the reduction in output by shedding workers, fi rms had preferred to create a labour reserve, mainly by means of more fl exible working arrangements; however, the repeated postponement of the hoped-for recovery prompted them to freeze their workforce in order to avoid eroding their profi tability. As in 2002, job losses occurred in industry and the construction sector, and they were only compensated by the continuing expansion of employment in the services sector, mainly in fi nancial and

–20

–10

0

10

20

30

40

80

81

82

83

84

85

86

2000 2001 2002 2003

CHART 10 BUSINESS CONFIDENCE AND CAPACITY UTILISATION RATES IN THE EURO AREA


Source : EC.

(left-hand scale)

Business confidence in the services sector

Business confidence in the industrial sector

Capacity utilisation rate in industry (percentages)(right-hand scale)

Rate of production capacity utilisation :Average 1994-2003

0

3

6

9

12

0

5

10

15

20

25

30

35

2000 2001 2002 2003

CHART 11 FINANCING OF NON-FINANCIAL CORPORATIONS IN THE EURO AREA

(Percentage changes compared to the corresponding period in the previous year)

Source : ECB.

MFI loans to non-financial corporations (left-hand scale)

Issuance of securities other than shares by non-financial corporations(right-hand scale)

15


business-related services. The stagnation of employment in the euro area conceals contrasting developments in the various member countries. Thus, employment declined sharply in Germany, the Netherlands and Portugal, while in Spain, Greece, Ireland and Italy job creation continued uninterrupted. Unemployment in the euro area in general increased from 8.4 to 8.8 p.c. of the labour force : a rise was recorded in all euro area countries except for Spain, Italy and Greece.

Compared to the previous episode of decelerating eco-nomic growth, in the early 1990s, the effect on employ-ment of the slowdown which began during the year 2000 was more limited, owing to the less pronounced decline in employment in agriculture and industry, and sustained, stronger growth of employment in services. This relative dynamism seems to confi rm that economic growth on the European labour market had a higher job content from the second half of the 1990s. That higher job content is due to wage moderation and probably also to a combination of other factors such as greater fl exibility in contracts of employment and a better trained labour force. The policies introduced to that end by the Member States have perhaps become more effective, now that the European Employment Strategy launched in 1997 has helped to ensure that they are implemented in a consist-ent, coordinated manner.

Following the 2002 assessment of its fi rst fi ve years of operation, the European Employment Strategy was reformulated in 2003 to cater for the new challenges presented by an increasingly fast-changing economic environment, the ageing population and the enlarge-ment of the EU. The revised strategy sets three main aims : fi rst, full employment, including the targets for employment rates set at the Lisbon and Stockholm sum-mits; second, the enhancement of labour quality and productivity, with particular emphasis on support for jobs in the knowledge economy and the need to increase competitiveness; third, the effort to achieve cohesion and integration, particularly by combating all forms of discrimination, reducing inequalities between the sexes and mitigating regional variations in employment. In order to achieve greater coherence in the general coordination of the policies pursued by the EU Member States, employment guidelines are now approved by the European Council at the same time as the broad eco-nomic policy guidelines, in June of each year. Similarly, in accordance with the wishes expressed at the European Summit in Barcelona, the guidelines have been simpli-fi ed and reduced in number, and are based to a greater extent on quantitative targets. Furthermore, it has been specifi ed that the new guidelines cover a clearly defi ned period, namely 2003-2010, and that they will in prin-ciple remain unchanged until the mid-term assessment in 2006.

2000 2001 2002 2003

4.5

3.5

1.5

0.5

–0.5

–1.5

2.5

4.5

3.5

1.5

0.5

–0.5

–1.5

2.5

CHART 12 MAIN CATEGORIES OF EXPENDITURE IN THE EURO AREA

(Contribution to the change in GDP compared to the corresponding quarter in the previous year, percentage points)

Source : EC.

Final domestic demand

Change in stocks

Net exports

p.m. GDP

TABLE 7 GROWTH IN THE EURO AREA COUNTRIES (1)

(Percentage changes)

Sources : OECD, NBB.(1) The euro area countries are ranked in order of the relative size of their GDP.

2002 2003

Germany . . . . . . . . . . . . . . . . . . . . 0.2 0.0

France . . . . . . . . . . . . . . . . . . . . . . 1.3 0.1

Italy . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.5

Spain . . . . . . . . . . . . . . . . . . . . . . . 2.0 2.3

Netherlands . . . . . . . . . . . . . . . . . . 0.2 –0.5

Belgium . . . . . . . . . . . . . . . . . . . . . 0.7 1.1 e

Austria . . . . . . . . . . . . . . . . . . . . . 1.4 0.8

Finland . . . . . . . . . . . . . . . . . . . . . 2.2 1.0

Greece . . . . . . . . . . . . . . . . . . . . . 3.8 4.0

Portugal . . . . . . . . . . . . . . . . . . . . 0.4 –0.8

Ireland . . . . . . . . . . . . . . . . . . . . . . 6.9 1.8

Luxembourg . . . . . . . . . . . . . . . . . 1.3 1.2

Difference between the strongest and weakest growth rate . . . . . 6.7 4.8

Standard deviation . . . . . . . . . . . . 1.9 1.3

16

PRICES AND COSTS

Infl ation in the euro area, measured by the harmonised index of consumer prices (HICP), came to 2.1 p.c. during the year under review, against 2.3 p.c. in 2002. The upward tendency which had begun in mid 2002 persisted during the initial months of 2003, and infl ation peaked at 2.4 p.c. in February and March. This was due to unfa-vourable base effects and the upward pressure exerted on the energy component ahead of the armed confl ict in Iraq. Subsequently, infl ation eased, falling to 1.8 p.c. in May. Since then it has gathered pace a little, reaching 2 p.c. in December. This rise is due mainly to a number of temporary factors, such as bad weather which caused serious damage to the harvests and therefore triggered steep increases in the prices of unprocessed food, and to the increase in indirect taxes in some countries, such as taxes on tobacco products in Germany, Belgium, France and Portugal.

The underlying infl ation rate – i.e. excluding unprocessed food and energy – declined in 2003, falling from 2.5 p.c. in 2002 to 2 p.c. This downward trend emerged by the second quarter of 2002, the impetus being provided by prices of non-energy industrial goods, but it became more marked at the beginning of 2003 when the deceleration in the prices of these goods was combined with that in the price of services. These divergences in the pattern

of price movements between services and non-energy industrial goods illustrate differing responses, which may be due to the fact that services are less exposed to international competition, and that domestic labour costs represent a higher proportion of their production costs. In this situation, the deteriorating economic climate was refl ected in the prices of goods sooner than in the prices of services.

Apart from this aspect, the dip in the underlying infl a-tion rate in 2003 appears fairly modest, taking account of the economic gloom and the strong appreciation of the effective nominal euro exchange rate, up 11.4 p.c. against 2002. This relative inertia is due partly to the weak productivity gains and the absence of any notable deceleration in nominal wage increases, and partly to the time which elapses before the strengthening of the euro is refl ected in prices. Both labour productivity and compen-sation per employee increased in 2003 at a rate equivalent to that in 2002, so that unit labour costs exerted pressure on consumer prices comparable to that of the previous year, namely just under 2 p.c. The decline in prices of imported goods and services totalling 1.4 p.c. in 2003, after a 1.8 p.c. fall in 2002, caused by the appreciation of the euro, has so far had little impact on domestic prices. Apart from the transmission times inherent in the processing of imports, that impact depends on the pricing policy of the intermediaries responsible for distributing or processing these goods and services in the euro area, a policy which is infl uenced by the specifi c market condi-tions in each geographical region (pricing to market).

–2

–1

0

1

2

3

6

7

8

9

10

11

12

1993

1995

1997

1999

2001

2003

CHART 13 UNEMPLOYMENT AND GROWTH OF EMPLOYMENT IN THE EURO AREA

Source : EC.

Employment (percentage changes compared to the corresponding quarter of the previous year) (left-hand scale)Unemployment (as a percentage of the labour force)(right-hand scale)

TABLE 8 PRICE INDICATORS FOR THE EURO AREA

(Percentage changes compared to the previous year)

Sources : EC, OECD.(1) Measured by the HICP excluding unprocessed food and energy.(2) In the business sector.

2001 2002 2003

HICP . . . . . . . . . . . . . . . . . . . . . 2.4 2.3 2.1

Underlying inflation rate (1) . . . . 1.9 2.5 2.0

Deflator of GDP . . . . . . . . . . . . 2.4 2.4 1.9

Compensation per employee (2) . . 2.5 2.3 2.5

Productivity (2) . . . . . . . . . . . . . . 0.1 0.5 0.6

Unit labour costs (2) . . . . . . . . . . 2.4 1.8 1.9


17


There was a general fall in infl ation in the various coun-tries of the euro area in 2003 after the month of March, followed by a slight rise during the summer, but infl ation everywhere remained below its peak of February and March. The biggest fall of 2 percentage points between February and November occurred in Ireland, a country which conducts a relatively large proportion of its trade with countries outside the euro area and is therefore relatively sensitive to fl uctuations in the euro exchange rate. Nonetheless, that country continued to record the strongest price increases in the euro area during the year under review. Apart from Ireland, it was Greece, Portugal, Italy and Spain that recorded price rises in excess of the average for the euro area throughout the year. Except for Greece, those countries are also the ones where unit labour costs increased the most, while Greece and Ireland are the only countries where the output gap – defi ned as the difference between observed GDP and potential GDP – remained positive in 2003. On the other hand, the rate of price increases in Germany, Austria, Finland and Belgium remained below the euro area average throughout the year : unit labour costs showed relatively small increases in those countries, and import prices declined signifi cantly in two of them, namely Belgium and Germany. The infl ation

differential between the euro area countries, measured as the difference between the highest and lowest infl ation rates or the unweighted standard deviation, diminished only slightly in 2003. However, looking at the monthly change rather than the annual average, a more signifi cant narrowing of this differential is apparent in 2003.

BALANCE OF PAYMENTS

According to the ECB’s fi gures, which relate only to trade with countries outside the euro area, the current account surplus of the euro area slumped from 48.6 billion euro in the fi rst ten months of 2002 to 20 billion euro during the corresponding period in the year under review.

Almost half of that fall is due to the contraction of the surplus in goods transactions. This was attributable mainly to volume changes, particularly the increase in imports. Export and import prices fell by more or less equivalent amounts, so that the terms of trade hardly varied at all, on average, from one period to the next. Admittedly, part of the decline in export prices was due to lower import prices, but it also indicates that exporters endeavoured to compensate for the loss of competitiveness due to the appreciation of the euro by cutting their prices on external markets. Overall, the value of exports declined by around 3 p.c. during the fi rst ten months of the year under review, compared to the corresponding period in the previous year, while the value of imports was down slightly, by 0.7 p.c.

The dwindling current account surplus was also largely attributable to the growing defi cit in income. This last movement was due mainly to lower receipts from capi-tal income, the appreciation of the euro probably being partly to blame. The defi cit in current transfers also increased during the fi rst ten months of the year under review. On the other hand, transactions in services pro-duced a slightly larger surplus.

In 2003, the overall pattern of capital movements associ-ated with direct and portfolio investments was different from that of the previous year : a net infl ow of capital totalling 46.6 billion euro during the fi rst ten months of 2002 gave way to a net outfl ow totalling 10.9 billion euro in the corresponding months of 2003. This turnaround resulted from contrasting movements in direct investment and portfolio investment.

In the case of direct investment, the net outfl ow of capital totalled just 16.2 billion euro in the fi rst ten months of 2003, against 42.3 billion euro in the corresponding period of the previous year. This movement mainly refl ected cuts in foreign direct investment by euro area residents, i.e. in

TABLE 9 INFLATION IN THE COUNTRIES OF THE EURO AREA (1)

(Percentage changes in the HICP compared to the previous year)

Source : EC.(1) The countries of the euro area are ranked in order of the size of their GDP.(2) In the case of Greece, the first nine months of 2003 are the latest complete

period for which data are available.

2002 2003

Germany . . . . . . . . . . . . . . . . . . . . 1.3 1.0

France . . . . . . . . . . . . . . . . . . . . . . 1.9 2.2

Italy . . . . . . . . . . . . . . . . . . . . . . . . 2.6 2.8

Spain . . . . . . . . . . . . . . . . . . . . . . . 3.6 3.1

Netherlands . . . . . . . . . . . . . . . . . . 3.9 2.2

Belgium . . . . . . . . . . . . . . . . . . . . . 1.6 1.5

Austria . . . . . . . . . . . . . . . . . . . . . 1.7 1.3

Finland . . . . . . . . . . . . . . . . . . . . . 2.0 1.3

Greece . . . . . . . . . . . . . . . . . . . . . 3.9 3.5 (2)

Portugal . . . . . . . . . . . . . . . . . . . . 3.7 3.3

Ireland . . . . . . . . . . . . . . . . . . . . . . 4.7 4.0

Luxembourg . . . . . . . . . . . . . . . . . 2.1 2.5

Minimum . . . . . . . . . . . . . . . . . . . 1.3 1.0

Maximum . . . . . . . . . . . . . . . . . . . 4.7 4.0

Interval . . . . . . . . . . . . . . . . . . . . . 3.4 3.0

Standard deviation . . . . . . . . . . . . 1.1 0.9

18

their capital transactions and reinvestment of earnings. It was only partly offset by the contraction of direct invest-ment by non-residents in the euro area.

The structure of portfolio investments underwent signifi -cant changes. In particular, there was a shift in favour of debt instruments. The question mark over the interna-tional economic outlook and the preceding years’ per-formance of the stock markets – which was uninspiring, to say the least – may account for investors’ increased preference for these instruments. More specifi cally, euro area residents stepped up their foreign investments, par-ticularly in bonds. The investments of non-residents in the euro area showed a small increase. These movements caused the net infl ow of capital via portfolio investments to plummet from 88.9 billion euro in the fi rst ten months of 2002 to 5.2 billion euro in the corresponding months of the year under review.

BUDGETARY POLICY

Over the past three years, the fi nancing requirement of general government in the euro area as a whole has risen by around 0.6 p.c. of GDP each year, growing from 0.9 p.c. of GDP in 2000 to 2.8 p.c. in 2003. This deterioration was practically all due to the three largest countries : the defi cits of Germany and France, which had already passed the threshold of 3 p.c. of GDP in 2002, grew even larger while Italy’s defi cit rose to 2.6 p.c. of GDP. As regards the smaller euro area countries, those with large surpluses in the past, namely the Netherlands, Finland, Ireland and Luxembourg, experienced the sharp-est deterioration in their budget position. In earlier years, those countries had been able to afford to relax their budget discipline without incurring an excessive defi cit. The fi nancing requirements of Austria and, to a lesser extent, Greece diminished over the 2000-2003 period, whereas last year they increased. Spain has done par-ticularly well : between 2000 and 2003 that country succeeded in wiping out its defi cit so that, with Belgium and Finland, it was one of just three countries in the euro area not recording a public defi cit in 2003.

According to the EC’s autumn economic forecasts for 2003, most countries failed to meet the targets set in their latest stability programmes. In the three largest Member States of the euro area, the net fi gure achieved

85

90

95

100

105

110

115

2000 2001 2002 200385

90

95

100

105

110

115

CHART 14 TRADE IN GOODS BETWEEN THE EURO AREA AND COUNTRIES OUTSIDE THE EURO AREA

(indices 2000 = 100, three-month moving average of seasonally adjusted data)

Source : ECB.

p.m. Terms of trade

Volume

Value

Volume

Value

Exports : Imports :

TABLE 10 BALANCE OF PAYMENTS OF THE EURO AREA

(Billions of euros)

Source : ECB.(1) First ten months of the year.(2) Primarily the balance resulting from the new financial liabilities of MFIs vis-à-vis

non-residents of the euro area and from their formation of financial assets vis-à-vis these, excluding transactions relating to the reserve assets of the Eurosystem.

2002 (1) 2003 (1)

Current account balance . . . . . . . . 48.6 20.0

Goods . . . . . . . . . . . . . . . . . . . . 108.7 95.2

Services . . . . . . . . . . . . . . . . . . . 8.5 13.4

Income . . . . . . . . . . . . . . . . . . . –29.6 –45.9

Current transfers . . . . . . . . . . . . –39.1 –42.9

Capital account balance . . . . . . . . 9.9 7.6

Financial account balance . . . . . . . –62.6 –91.8

Direct investment . . . . . . . . . . . . –42.3 –16.2

Equity capital and reinvested earnings . . . . . . . . . . . . . . . –62.1 –3.8

Other capital, mostly intercompany loans . . . . . . 19.7 –12.4

Portfolio investment . . . . . . . . . . 88.9 5.2

Equities . . . . . . . . . . . . . . . . . 44.2 32.1

Debt instruments . . . . . . . . . . 44.6 –26.8

p.m. Combined net direct and portfolio investment . . . . . 46.6 –10.9

Financial derivatives . . . . . . . . . . –6.8 –9.1

Other investments (2) . . . . . . . . . –103.6 –87.5

Reserve assets . . . . . . . . . . . . . . 1.3 15.8

Errors and omissions . . . . . . . . . . . 4.2 64.3

19


in 2003, as in previous years, once again proved to be less favourable than planned. Several of the smaller Member States, including the Netherlands in particular, did not achieve their target either. However, Belgium and Spain did succeed here, while Austria considerably surpassed its target.

The increase in the fi nancing requirement of the euro area in general since 2000 is largely due to the slacken-ing of economic growth, but as indicated by the move-ment in the cyclically adjusted primary balance, which deteriorated steadily, discretionary policy measures have also played a part. The cyclically adjusted primary balance nevertheless showed a marked improvement in some countries during the year under review : that applies more particularly to Belgium, the Netherlands, Portugal and Ireland. In contrast, France and Italy, in common with a number of smaller countries, recorded a deterioration in that balance.

Over the past three years, the public debt expressed as a percentage of GDP has shown a sizeable fall in the coun-tries with the highest debt level, namely Italy, Belgium and Greece, as well as in Spain. However, it grew larger in Germany, France and Portugal : in the fi rst two countries

it therefore substantially exceeded the ceiling of 60 p.c. of GDP, set by the EU Treaty, while Portugal was not far behind. For the euro area as a whole, the level of public debt hovered around 70 p.c. of GDP.

On 7 March in the year under review, the Ecofi n Council made a number of clarifi cations or improvements in the budgetary policy coordination procedures. In particular, it specifi ed that compliance with the Stability & Growth Pact requirement whereby the budget should be close to balance or slightly in surplus should not be assessed in nominal terms, as might have been hitherto assumed if the pact were interpreted too strictly, but should be judged on a cyclically adjusted basis : in that way, if the pact is respected it does not impede the operation of the automatic stabilisers. The Ecofi n Council also con-fi rmed the agreement concluded at Eurogroup level on 7 October 2002, whereby countries not meeting the requirement of a budget close to balance or in surplus must reduce their cyclically adjusted defi cit by at least 0.5 p.c. of GDP per annum. It also stressed that a pro-cyclical policy must be avoided, especially in periods of buoyant activity. Finally, it stated that budgetary surveil-lance would pay greater attention to the long-term sus-tainability of public fi nances, the rate of debt reduction,

TABLE 11 FINANCING REQUIREMENT (–) OR CAPACITY OF GENERAL GOVERNMENT IN THE EURO AREA (1) (2)


Sources : EC, national stability programmes, NBB.(1) Countries are ranked in order of the relative size of their GDP.(2) Excluding the proceeds of the sale of UMTS licences.(3) According to the EC’s autumn 2003 forecasts.(4) On the basis of the stability programme updates effected by all Member States at the end of 2002 or the beginning of 2003, except for the Netherlands where this was not

done until June 2003.

2000 2001 2002 2003

Actualfigures (3)

Stabilityprogramme

target (4)

Difference

Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.2 –2.8 –3.5 –4.2 –2.8 –1.4

France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.4 –1.6 –3.1 –4.2 –2.6 –1.6

Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.8 –2.6 –2.3 –2.6 –1.5 –1.1

Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.9 –0.3 0.1 0.0 0.0 0.0

Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 0.0 –1.6 –2.6 –1.6 –1.0

Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.4 0.0 0.2 e 0.0 0.2 e

Austria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.9 0.3 –0.2 –1.0 –1.3 0.3

Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 5.2 4.2 2.4 2.7 –0.3

Greece . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.9 –2.0 –1.2 –1.7 –0.9 –0.8

Portugal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –3.1 –4.2 –2.7 –2.9 –2.4 –0.5

Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 0.9 –0.4 –0.9 –0.7 –0.2

Luxembourg . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 6.2 2.4 –0.6 –0.3 –0.3

Euro area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.9 –1.6 –2.2 –2.8 –1.8 –1.0

20

particularly in countries with a very high public debt, and fi nally the quality of public fi nances, in order to enhance the potential for economic growth in accordance with the Lisbon agenda.

Following the deterioration in the German and French public defi cits, which had exceeded 3 p.c. of GDP in 2002, the EC and the Ecofi n Council took a number of initiatives under the excessive public defi cit procedure. The Ecofi n Council toned down or rejected some originally strict EC recommendations, whereas in certain cases the EC itself demonstrated a degree of fl exibility in applying the rules, particularly by proposing in November 2003 that the obligation for the German and French authorities to cut their budget defi cit below the 3 p.c. mark might be post-poned until 2005, in view of the rather dismal economic environment. On that occasion, the EC did not gain the Ecofi n Council’s support for its proposal to insist on faster budgetary consolidation in 2004 than the two aforesaid countries were prepared to achieve. Nevertheless, those two countries did agree to bring their defi cit below 3 p.c. by 2005.

In 2003, Germany put up certain indirect taxes and social security contributions, and pursued a strict policy on expenditure, but its budget defi cit still grew larger, reaching 4.2 p.c. of GDP, while the debt ratio rose to almost 64 p.c. France also exceeded by 1.2 p. of GDP the maximum permitted defi cit of 3 p.c. of GDP. Apart from

TABLE 12 CYCLICALLY ADJUSTED PRIMARY BALANCE OF GENERAL GOVERNMENT IN THE EURO AREA (1) (2)


Source : EC.(1) Countries are arranged in order of the relative size of their GDP.(2) Excluding the proceeds of the sale of UMTS licences.(3) Excluding Luxembourg.

2000 2001 2002 2003

Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 0.0 –0.3 –0.3

France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.7 –0.5 –0.7

Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0 3.2 3.4 3.2

Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 2.2 2.6 2.6

Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 1.7 1.0 1.7

Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 6.2 6.0 6.4

Austria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 3.6 3.2 2.6

Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 7.0 6.0 4.9

Greece . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9 4.9 4.6 3.8

Portugal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.0 –1.8 0.3 0.8

Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 0.9 –0.4 0.6

Euro area (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 1.6 1.3 1.2

0

30

60

90

120

0

30

60

90

120

2000

2003

CHART 15 CONSOLIDATED GROSS PUBLIC DEBT IN THE EURO AREA


Source : EC.

IT BE GR AT ES DE FR NL PT FI IE LU Euroarea

the weakness of economic activity, which deteriorated more sharply than initially expected, the tax cuts and the rapid growth of health care spending and investment in defence accounted for France’s budget problems. In Italy,

21


the defi cit which had contracted the previous year grew slightly larger even though the government introduced numerous specifi c measures to increase revenues. Those measures consisted mainly in a massive regularisation in respect of tax offences – which brought in around 1 p.c.

of GDP – and to deal with other offences, and in the sale of property. The three countries introduced or announced structural measures, particularly on pensions, which should ultimately contribute towards improving their public fi nances.

Box 1 – Economic foundations of the European rules on the fi scal policy of the Member States

The Treaty establishing the EU lays down the general objective of sustainable economic growth based on stable prices and sound public fi nances. A stable economic environment reduces the uncertainty which the economic players have to take into account in their decisions, and therefore permits a more effi cient allocation of resources and stronger economic growth. In particular, macroeconomic stability contributes towards a reduction in the risk premium included in market interest rates, and that also encourages investment and growth potential.

While monetary policy in the euro area has become a supranational responsibility conferred on the Eurosystem, budgetary policy has remained largely a matter for the Member States. Nonetheless, the Treaty and the Stability & Growth Pact established a framework which was intended to ensure that the Member States exercised budgetary discipline. Compliance with the Treaty, and more specifi cally the obligation to avoid a public defi cit of over 3 p.c. of GDP under normal circumstances, guarantees the long-term sustainability of public fi nances, while the provi-sion in the pact relating to the medium-term objective of a budget close to balance or in surplus is intended to permit the automatic stabilisers of public fi nances to operate to the full without exceeding the 3 p.c. threshold. Furthermore, under the Treaty, the States must consider their budgetary policy, in the same way as their economic policy in general, as a question of mutual interest, and coordinate it via the Ecofi n Council, the broad economic policy guidelines constituting the primary coordination instrument here.

Above all, sound public fi nances are absolutely vital for sustained economic growth in each Member State, as persistent budget defi cits are inevitably accompanied by a substantial public debt and a large interest burden. The public defi cit then absorbs an ever increasing proportion of savings, at the expense of private investment. The defi cit and debt spiral may be exacerbated still further if investors demand a higher risk premium in view of a loss of confi dence in the government’s long-term solvency. At the same time, the growing interest burden reduces any room for manœuvre which might be used, if necessary, to make the tax system more conducive to employment or to allocate more public funds to expenditure which substantially boosts economic growth potential, such as investment in infrastructure, training, education and research & development.

The Stability & Growth Pact target is particularly well-suited to the situation of the Member States of the euro area in that the majority of them will, in the future, be confronted to a greater or lesser extent by additional expenditure on pensions and health care as a result of their ageing population.

Rules on the budgetary policy of the Member States are also justifi ed by the effects of contagion between the euro area countries. Thus, the negative repercussions on interest rates caused by the derailment of public fi nances in one country are less severe if the country belongs to a monetary union, since that imbalance no longer impacts solely on the fi nancing capacity of that economy but on the capacity of a larger entity. In that way, one country may secure short-term gains by relaxing its budget discipline, while all the other member countries may suffer from any associated increase in interest rates. Such a development may undermine the willingness of the other countries to pursue a prudent policy. Moreover, an excessively expansionary budget policy in one country of the euro area may, by affecting domestic demand and the general level of prices, complicate the Eurosystem’s task of maintaining price stability.

!

22

POSITION OF THE EU COUNTRIES OUTSIDE THE EURO AREA

AS REGARDS PARTICIPATION IN STAGE 3 OF EMU

Three EU Member States – the United Kingdom, Sweden and Denmark – are not participating in EMU Stage 3 and are therefore deemed to have been granted a derogation. Two of them, the United Kingdom and Denmark, enjoy special status. In contrast, the EU Treaty requires Sweden to adopt the euro once all the conditions are met. However, that country does not yet meet the exchange rate criterion, and its legislation is not entirely compatible with the Treaty, e.g. as regards the independence of the central bank. Moreover, in a consultative referendum in September 2003, the majority of the Swedish population came out against the introduction of the euro.

In accordance with the terms laid down by the protocols attached to the Maastricht Treaty, their special status means that the United Kingdom and Denmark must take the initi ative in notifying the European Council of their position with regard to participation in the third stage. To defi ne that point of view, the British government devised, in 1997, a framework comprising fi ve economic tests, the purpose of which is to assess whether or not EMU membership is in the United Kingdom’s economic interests. That framework is based on the theory of ‘optimum currency areas’ and can be used to assess whether the British economy has achieved suffi cient convergence with the economy of the euro area, and whether it has attained the necessary fl exibility to respond, if necessary, to specifi c shocks affecting only Britain itself. The British government considers that these two aspects are essential to successful participation in EMU. A second assessment was carried out in July 2003. Although the British government recognised that progress had been made since 1997 in satisfying the fi ve tests, and that membership also offers long-term economic advantages in terms of investment, trade, growth and employment, it concluded that sustainable, lasting convergence had not yet been achieved. In view of this negative opinion, it decided not to hold a referendum for the time being.

Of the three countries granted a derogation, only Denmark is a member of the ERM II and pursues a stable exchange rate policy within the narrow ERM II fl uctuation margin, set at 2.25 p.c. on either side of the central rate. Moreover, Denmark satisfi es all the other conditions laid down in the Treaty for participation in the third stage of EMU.

1.4.2 Enlargement of the European Union

INSTITUTIONAL DEVELOPMENTS

At the Copenhagen European Summit in 1993, the EU had fi xed a number of criteria to be met by the candidate countries. The political criteria require stable democratic institutions, respect for human rights and the protection of minorities. To meet the economic criteria, countries wishing to join the Union must have viable market econo-mies and be capable of withstanding the pressures of competition in the EU. Finally, the institutional criterion concerns compliance with the obligations resulting from accession, including the adoption of the “acquis commu-nautaire”. At the end of 2002, the EC had concluded that Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Czech Republic, Slovakia and Slovenia satisfi ed these criteria. On the EC’s recommendation, the European Council considered that the accession negotiations were now concluded. On 16 April in the year under review, the Accession Treaty with these ten countries was signed in Athens, and their accession is scheduled for 1 May 2004, once the treaty ratifi cation process has been completed.

Except for Cyprus, which only followed the parliamentary procedure, each of the ten accession countries conducted a referendum during the year under review, and the population voted in favour of EU accession. That should permit completion of the ratifi cation process by the planned date of 1 May 2004. Meanwhile, the EC has nevertheless noted that in many countries, especially Poland, there are still a number of problems to be resolved

Under the Stability & Growth Pact, the Member States have the right to set more ambitious medium-term targets which, apart from the unrestricted operation of the automatic stabilisers, also enable them to pursue a discretionary budgetary policy in order to attenuate the economic cycles. However, the effectiveness of a pro-active budgetary policy is questionable. First, it usually encounters problems of implementation, often refl ected in delays, and may even reinforce the economic cycle. Also, it is hard to determine how much impetus should be applied, in view of uncertainty about not only its impact but also the actual progress of economic activity. Furthermore, experience has shown that such a policy may have a lasting effect on the state of public fi nances, since it is easier to let the defi cit rise in times of weak growth than to reduce it when growth is strong. That may damage the confi dence of households and businesses, even to the point of negating any expansionary boost resulting from budgetary policy.

23


concerning non-compliance with certain aspects of the “acquis communautaire”.

The European Councils held in Thessalonica and Brussels on 19 and 20 June and 12 and 13 December respectively recognised that Bulgaria and Romania were also involved in the irreversible process of enlargement and that, provided those two countries make suffi cient progress on the accession criteria, they could join the Union in 2007. In Romania’s case, the essential problem is still the unsatis factory operation of the market economy. Accession negotiations were also scheduled with Turkey, but their commencement remains conditional on the progress achieved in meeting the Copenhagen political criteria. At the Copenhagen Council, the heads of state and government also reiterated their commitment to supporting the western Balkan countries, to enable them to join the Union in due course.

ECONOMIC SITUATION IN THE ACCESSION COUNTRIES

Despite a diffi cult international environment, economic growth was substantially stronger in almost all the accession countries than in the EU. In most of those countries, it was supported by the buoyancy of domestic

demand, especially private consumption and investment expenditure. As in previous years, net exports of goods and serv ices made a negative contribution to growth.

After slackening pace for two years, growth recovered in Poland, mainly as a result of lower interest rates, the sharp depreciation of the real effective exchange rate and an expansionary fi scal policy. Public spending also contrib-uted to growth in the Czech Republic, but that contribu-tion was offset by the downturn in investment, so that this economy was among the countries with the lowest growth rates in the region. On the other hand, Hungary and Slovakia implemented public spending cuts which depressed growth, but in the former country private consumption continued to rise particularly strongly, while in the latter it was mainly exports that contributed towards expansion. The favourable economic results achieved by the Baltic states were due mainly to increased exports to Russia, which experienced a boom phase, and the expan-sion of private investment. This last development refl ects business confi dence in the long-term growth potential of these countries, where the authorities have linked radical restructuring of the economy with an orthodox macroeco-nomic policy, although the low rate of tax on profi ts may also have played a role.

TABLE 13 ECONOMIC SITUATION OF THE ACCESSION COUNTRIES IN 2003

Source : EC.(1) Excluding Luxembourg.

GDP at constant prices Consumerprices

Unemployment(percentages

of the labour force)

Public finances Balanceof payments

current accountAverage

1994-20022003 Financing

requirement (–) or capacity

Debt

(Percentage changes compared to the previous year) (Percentages of GDP)

Poland . . . . . . . . . . . . . . . . . 4.5 3.3 0.7 20.6 –4.3 45.1 –2.9

Czech Republic . . . . . . . . . . 2.2 2.2 0.0 7.8 –8.0 30.7 –6.6

Hungary . . . . . . . . . . . . . . . 3.5 2.9 4.6 5.6 –5.4 57.9 –6.2

Slovakia . . . . . . . . . . . . . . . . 4.3 3.8 8.5 17.7 –5.1 45.1 –3.8

Slovenia . . . . . . . . . . . . . . . . 4.1 2.1 5.9 6.4 –2.2 27.4 0.5

Lithuania . . . . . . . . . . . . . . . 3.4 6.6 –0.9 12.3 –2.6 23.3 –5.7

Latvia . . . . . . . . . . . . . . . . . 4.4 6.0 2.5 12.4 –2.7 16.7 –8.6

Estonia . . . . . . . . . . . . . . . . 4.4 4.4 1.6 8.6 0.0 5.4 –15.2

Cyprus . . . . . . . . . . . . . . . . . 4.1 2.0 4.3 3.9 –5.2 60.3 –4.4

Malta . . . . . . . . . . . . . . . . . 3.9 0.8 1.3 7.0 –7.6 66.4 –6.6

Accession countries . . . . . . . 3.8 3.1 2.3 15.1 –5.0 42.4 –4.6

EU . . . . . . . . . . . . . . . . . . . . 2.4 0.8 2.0 8.1 –2.7 64.1 0.5 (1)

24

Now that the countries of central and eastern Europe have absorbed most of the initial restructuring costs relat-ing to their transformation into market economies, they have all – except the Czech Republic – achieved higher growth, on average, than the Union ; the same applies to Cyprus and Malta. Such a catching-up process is normal for countries joining a group where per capita income is more than twice as high as their own. Spain, Portugal and Greece also went through this real convergence process when they joined the EU, and indeed are still experiencing it now. The accession countries can be expected to con-tinue enjoy some of the highest growth rates of the EU countries for the next few years, thus strengthening the economic and social cohesion within the EU, an element to which the Treaty attaches great importance and for which the Union provides substantial resources.

Infl ation, which has followed a consistent, downward trend in recent years, was steady at an average of 2.3 p.c. in the accession countries, a level comparable to that of the EU. However, considerable disparities persist between the accession countries. In some of them, such as Poland and the Czech Republic, infl ation was very low or even zero – Lithuania actually experienced defl ation – owing to the downward pressure on prices resulting from increased competition and substantial productivity gains. These effects were further reinforced in the Czech Republic by the relative weakness of demand, and in Lithuania by the appreciation of the litas. Other countries, such as Hungary, Slovakia and Slovenia, continued to experience high infl a-tion. The rise in labour costs was only a minor factor here, since that was offset by growing productivity gains. The main causes were the liberalisation of regulated prices, increased indirect taxes resulting from the need for harmo-nisation with the EU, and for some countries, the increase in import prices due to the depreciation of their currency. Since these were largely non-recurring factors, infl ation can be expected to ease in these countries in the near future.

The unemployment rate in the accession countries is almost twice that of the EU as a whole, but this problem applies particularly to Poland and Slovakia, and to a lesser extent the Baltic countries. The economic restructuring following the switch from a planned economy to a market economy destroyed many jobs, and new jobs are only slowly being created, the strength of the economic growth coming mainly from higher labour productivity. Poland and Slovakia continued to experience the effects of that restructuring, particularly in heavy industry and, in Poland’s case, in agriculture, too. Moreover, the labour markets are ineffi cient in a number of these countries : the relatively high fi scal and parafi scal burdens on labour and the lack of regional and sectoral mobility are creating a mismatch between supply and demand. Thus, labour is

scarce in some regions and sectors, e.g. in the capital city and in certain service subsectors, while structural unem-ployment holds sway in rural areas and in the traditional economic sectors of many countries.

Several of the accession countries were confronted by large budget defi cits which, except in the Baltic countries and Slovenia, were well in excess of 3 p.c. of GDP, one of the convergence criteria for the third stage of EMU. These defi cits are due to a variety of factors, such as the government’s ineffi ciency in collecting taxes and in budget planning, the large proportion of public expendi-ture devoted to wages and transfer payments – which hampers spending cuts – and the need to close the gap in public investment. In addition, the Polish and Czech governments reduced taxes, causing the defi cit to swell further. Conversely, Hungary managed to reduce its defi cit by implementing economy measures.

In all the central European accession countries, the public debt remained well below the EU level and below the ceil-ing of 60 p.c. of GDP stipulated in the EU Treaty. It should be remembered that those countries started making the economic transition in the early 1990s with a very low or even non-existent public debt. Unless the current defi cits are swiftly reduced to an affordable level, the debt will soon exceed 60 p.c. of GDP in a number of accession countries.

In recent years, all the countries except Slovenia have carried a large current account defi cit on their balance of payments. There is nothing unusual about a current account defi cit in countries where domestic demand is growing strongly. Moreover, long-term capital infl ows, i.e. foreign direct investment, fi nanced a large proportion of these defi cits. To some extent, that source of current defi cit funding could dry up in the future, as foreign direct investment associated with the privatisation of large enterprises starts to become scarce.

In most of the accession countries, the national cur-rency depreciated against the euro in 2003, while the euro area is by far their most important trading partner. The movement in a currency’s exchange rate depends to some extent on the exchange rate system. The Polish zloty, which is free to fl oat, strengthened rapidly up to mid 2001, mainly because of the wide interest rate spread in relation to the euro area. The ensuing depreciation was due to the reduction in interest rates and the resulting decline in capital infl ows. The fact that the zloty fell to an all-time low of about 38 p.c. below its peak of mid 2001 is also due to recent political tensions. Up to mid 2002, the Czech koruna, which is also a fl oating currency, had been strengthened mainly by the infl ow of foreign direct invest-ment. Since then, the fi nancial markets have reversed their

25


attitude to the koruna, particularly following the adverse trend in a number of macroeconomic indicators, such as the public defi cit, the lack of structural reform which is impeding growth, and the uncertainty over the political situation. The exchange rate of the Slovak koruna, which is subject to a managed fl oating exchange rate system, fl uctuated against the euro and by the end of 2003 was about 6 p.c. above the rate prevailing at the beginning of 2001. Slovenia aligns the rate of the tolar with the euro and applies a narrow fl uctuation margin around a parity which is adjusted downwards according to the infl ation differential in relation to the euro area : thus, the tolar depreciated steadily by almost 10 p.c. over the period 2001 – 2003, while its real bilateral rate remained unchanged. In June 2001, Hungary’s central bank had abandoned the system of controlled depreciation against the euro, unilaterally pegging the forint to the euro with a 15 p.c. fl uctuation margin. However, the fi nancial markets considered that the new central rate against the euro was too low, so that the Hungarian forint appreciated almost constantly up to the end of 2002 to reach the upper limit

of the 15 p.c. margin. After that, the forint stabilised at a slightly lower level, partly as a result of interventions and two interest rate cuts. In view of the loss of competitive-ness for Hungarian businesses, the central bank cut the central rate by 2.26 p.c., at the government’s request, at the beginning of June 2003. However, that was exceeded by the subsequent depreciation. Later, the key interest rate was raised on two occasions to control infl ation, prompt-ing a further temporary appreciation of the currency.

The smallest accession countries opted to link their cur-rency to the euro with varying degrees of strictness. Cyprus unilaterally applies the ERM II, while Latvia has linked its currency to the SDR and Malta uses a basket of currencies in which the euro predominates. Since March 2002, the national currencies of these last two countries have depre-ciated against the euro, owing to the weakness of the dollar in relation to the euro. The Estonian and Lithuanian national currencies are linked to the euro by a currency board, and have therefore remained perfectly in line with the euro since than link was established.

80

85

90

95

100

105

110

115

120

80

85

90

95

100

105

110

115

120

2001 2002 2003 2001 2002 2003

CHART 16 NOMINAL EXCHANGE RATES OF ACCESSION COUNTRY CURRENCIES VIS-À-VIS THE EURO

(indices January 2001 = 100 ; an increase (decrease) corresponds to an appreciation (depreciation) of the national currency)

Source : ECB.

Slovak koruna

Slovenian tolar

Free float

Managed float

Fixed link to a basket of currencies

Currency board system of pegging to the euro

Unilateral link to ERM IICyprus pound

Hungarian forint

Polish zloty

Czech koruna

Latvian lats

Maltese pound

Estonian kroon

Lithuanian litas

26

Box 2 – Belgium’s trade with the accession countries

Belgium’s trade with the accession countries is expanding steadily. Exports increased from a modest 0.7 p.c. of GDP in 1993 to around 2 p.c. of GDP in the year under review, while imports have followed a similar pattern, growing from 0.4 to 1.5 p.c. of GDP. Thus, every year, Belgium has achieved a surplus of close on 0.4 p.c. of GDP with these countries. The expanding trade was initially due to the economic transformation of the accession countries, which caused them to transfer their trade from the former COMECON countries to the west, and later to the steady abolition of the tariff and non-tariff barriers to trade with the EU. In the past few years, this process of growing interdependence through trade seems to have moderated somewhat.

Data relating to 1993-2003 reveal that Belgium’s trade surplus with the accession countries is due, in particular, to goods produced by the chemical and pharmaceutical industry, food industry products, machinery and transport equipment, whereas Belgium is a net importer of furniture, textiles and clothing. Belgium has a surplus with each of the ten accession countries except – since 2002 – Hungary. The deterioration in the trade balance with that country is due mainly to the steep rise in imports of pharmaceutical products from 1999 onwards.

The expansion of trade is leading to increasing specialisation, and hence greater productivity, as well as greater freedom of choice for consumers, and that is conducive to general prosperity overall. This new trade may prompt fi rms to restructure their activity in Belgium, just as it may foster the expansion of other businesses, in that case stimulating employment and investment in Belgium. In view of the gradual nature of the integration process in the accession countries and their modest overall signifi cance for Belgium’s international trade, the adjustment costs have so far been low while the benefi ts of the expansion in trade will be long-lasting.

2.5

2.0

1.5

1.0

0.5

0.0

2.5

2.0

1.5

1.0

0.5

0.0

1.50

1.25

1.00

0.75

0.50

0.25

0.00

–0.25

–0.50

1.50

1.25

1.00

0.75

0.50

0.25

0.00

–0.25

–0.50

BELGIUM’S TRADE WITH THE ACCESSION COUNTRIES

Source : NAI.

Pola

nd

Hun

gary

Slov

enia

Slov

akia

Cze

ch R

epub

lic

Oth

er a

cces

sion

cou

ntrie

s

All

acce

ssio

n co

untr

ies

GEOGRAPHICAL DISTRIBUTION(Trade balance, billions of euro, 2002)

EXPORTS AND IMPORTS(Percentages of GDP)

1993

1995

1997

1999

2001

2003

e

ExportsImports

27

THE MONETARY POLICY OF THE EUROSYSTEM

2.1 Strategic aspects

Revision of the monetary policy strategy

The primary aim of the Eurosystem, set by the Maastricht Treaty, is to maintain price stability in the euro area. In October 1998 the ECB’s Governing Council announced the key elements of the monetary policy strategy that it intended to apply in order to achieve that aim. The strat-egy comprised a quantifi ed defi nition of the price stability objective and a two-pillar analytical framework for assess-ing the risks to price stability. The fi rst pillar accorded a prominent role to money, underlined by a reference value for the growth of the broad monetary aggregate M3. The second pillar consisted of the analysis of a broad range of other economic and fi nancial indicators.

At the end of 2002, having conducted the monetary policy of the euro area for a period of four years, the Governing Council considered it appropriate to make a detailed assessment of its strategy, taking account of the public debate which had arisen and a series of studies carried out by Eurosystem experts. On 8 May 2003 the Council completed this assessment exercise and con-fi rmed the main elements of the strategy, namely the quantifi ed defi nition of price stability and the two pillars forming the basis for assessing the risks to prices, but it clarifi ed certain aspects which had given rise to communi-cation problems in the past.

First, the Governing Council confi rmed the defi nition of the price stability objective as a rise in the Harmonised Index of Consumer Prices (HICP) of less than 2 p.c. per annum in the medium term in the euro area, but speci-fi ed that it aimed to maintain that rise at levels close to the threshold. The objective of a rise close to 2 p.c. offers a safety margin to guard against the risks of defl ation, as

2. The monetary policy of the Eurosystem

a situation in which monetary policy is seriously hampered because nominal interest rates have already been reduced to zero is therefore highly unlikely to arise. In addition, such an objective also reduces the risk of persistently fall-ing prices in certain euro area countries, not the same thing as defl ation but still capable of causing unwelcome effects if certain prices and incomes are affected by nomi-nal downward rigidity. Finally, it allows for the possible existence of a bias in the measurement of the HICP, with a small rise corresponding to overall price stability because, for example, it is diffi cult to take account of improve-ments in product quality.

Next, the Council confi rmed that it would continue to base its monetary policy decisions on detailed analysis using the two pillar structure. Nevertheless, it explained that the main purpose of the monetary analysis is to check from a medium to long term perspective the information yielded by economic analysis for the short and medium term. In order to highlight the longer term nature of the reference value announced for growth of the money supply, the Council decided to cease reviewing that fi gure each year. The monetary analysis is not confi ned to moni-toring the movement in M3 : to make an accurate assess-ment of the risks to price stability caused by monetary growth, the analysis also examines measures of liquidity, determinants of demand for money, and the components and counterparts of M3. Finally, to ensure that the role of the two pillars of the strategy is properly refl ected in communication with the public, the Governing Council announced that the President’s introductory statement at the press conferences held after Council meetings dealing with monetary policy will in future start with the economic analysis, followed by the monetary analysis, and will end with an overall assessment.

28

The Governing Council’s decision, which confi rmed and clarifi ed the main elements of the monetary policy strategy aimed at price stability, was based on a favour-able appraisal of the policy conducted since 1999 and guarantees the continuity of that policy. Despite the considerable price shocks which have occurred, the long-term infl ation outlook was fi rmly anchored to very stable levels, and that has also enabled monetary policy to make a substantial contribution towards buttressing activity in recent years.

By clarifying its medium-term objective, the Governing Council endorsed the interpretation which fi nancial operators and professional forecasters had apparently placed upon it. The fi ve-year infl ation forecasts and the ten-year break-even infl ation rate derived from compari-son of nominal bond yields and the yields on bonds index-linked to the HICP (excluding tobacco prices) in the euro area, issued by the French State, have generally remained slightly below the fi gure of 2 p.c. per annum. However, just as in the spring of 2002, the break-even infl ation rate, which must be interpreted in the light of the relatively low liquidity of the index-linked bond market, exceeded that threshold in the autumn of 2003.

Economic analysis

The economic analysis focuses mainly on examination of current economic and fi nancial developments and assess-ment of the consequent short- and medium-term risks to price stability. Special attention is devoted to the impact of economic shocks on costs and prices.

During the initial months of the year under review, a number of price shocks caused infl ation to creep upwards in the short term. The steep increase in oil prices, due to the threat of confl ict in Iraq, and the increases in indirect taxation in some countries pushed up consumer prices. Infl ation in the euro area, measured via the HICP, peaked at 2.4 p.c. in February and March.

Despite these short-term shocks, the risks of rising infl ation in the medium term were moderated by the strong appreciation of the euro and downgrading of the economic forecasts. In the fi nal days of 2002, most fore casters were still suggesting that GDP growth would

1999 2000 2001 2002 2003

3.5

3.0

2.5

2.0

1.5

1.0

0.5

3.5

3.0

2.5

2.0

1.5

1.0

0.5

CHART 17 INFLATION AND LONG-TERM INFLATION EXPECTATIONS

(Annual percentage changes)

Sources : EC, ECB.(1) Calculated on the basis of the comparison between the yields of nominal bonds

and of the bonds index-linked respectively on the basis of the national index of consumer prices in France and of the HICP of the euro area (excluding tobacco in both cases), issued by the French State.

(2) Survey among professional forecasters.

Five-year inflation prospects (2)

Ten-year break-even inflation (France) (1)

Ten-year break-even inflation (euro area) (1)

HICP

p.m. Upper limit of the definition of price stability

–7

–6

–5

–4

–3

–2

–1

0

1

2

3

4

5

6

7

–16

–12

–8

–4

0

4

8

12

16

1999 2000 2001 2002 2003

A B

–160

–120

–80

–40

0

40

80

120

160

CHART 18 PRICES AND COSTS IN THE EURO AREA

(Percentage changes compared to the corresponding period of the previous year)

Sources : EC, ECB.

Hourly labour costs in industry and servicesIndustrial producer prices

HICP

(left-hand scale)

Weighted average exchange rate of the foreign currencies (right-hand scale A)Price of crude oil in US dollars (right-hand scale B)

29


steadily gain momentum during 2003 to reach a level close to the potential growth rate in the second half of the year. In the fi rst half of 2003, these forecasts were adjusted downwards, and the prospect of an imminent revival in activity was once again delayed. This deterioration in the economic situation was attributable to international tension and the associated sharp rise in oil prices. These developments created a great deal of uncertainty and weakened the confi dence of the economic agents, who continued to postpone major investment or consumption decisions, thereby depressing activity. In the fi rst half of 2003, GDP declined slightly in the euro area. In this gloomy economic climate with rising unemployment, the average increase in hourly labour costs decelerated a little.

The general economic uncertainty was also refl ected on the fi nancial markets. In the initial months of the year, European stock markets fell to a level corresponding to less than half the record fi gures of early 2000. The risk premiums included in corporate bond yields, which had risen sharply in the second half of 2002, also remained high during that period. Long-term interest rates con-tinued to fall, reaching extremely low levels, historically speaking, at the end of June.

After the second decision to cut interest rates on 5 June, contrasting developments persuaded the Governing Council that the infl ation outlook was satisfactory.

In the second half of 2003, infl ation in the euro area con-tinued to hover just above the 2 p.c. level, which seemed to confi rm that fears of defl ation were unfounded, but also demonstrated a disappointing persistency, in view of the weakness of economic activity and the appreciation of the euro. The increase in food prices following the heat wave in the summer of 2003, the persistently high level of oil prices, due to political instability in the Middle East, and the increases in indirect taxation in several euro area countries prevented any more substantial fall in the HICP. Moreover, consumer prices and wages took a while to respond to the appreciation of the euro and to the economic climate. These factors indicate the presence of rigidities in price and wage formation in the euro area.

In the autumn, a number of advance indicators showed that the recovery of activity had begun in the middle of the year and had progressively gained momentum. Businesses and consumers had evidently become more confi dent, and the euro area’s GDP grew by around 0.4 p.c. in the third quarter against the preceding quarter. The fi nancial markets became more upbeat, and that was refl ected in particular in a relatively steep rise in share prices and a large reduction in the risk premiums on European corporate bonds. However, there was little fear of infl ationary pressure in a context of gradual recovery and the appreciation of the euro.

Monetary analysis

The movements in the monetary and credit aggregates are analysed in depth as they contain information on the possible medium- and long-term trend in prices and may therefore contribute towards an overall assessment of the risks to price stability.

The rate of growth of M3, which was well in excess of the reference value of 4½ p.c. from mid 2001, remained very high during the year under review. After stabilising at around 7 p.c. in the second half of 2002, the growth rate of this aggregate resumed its climb from the beginning of 2003, reaching a peak of 8.7 p.c. in July. Subsequently, the pace of monetary growth slackened somewhat, yet the growth rate recorded in the last quarter was still 7.6 p.c.

The sustained growth of the money supply in the year under review refl ects the persistence of a marked prefer-ence for liquidity among economic agents in the euro area. Models of demand for money and the data on the components and counterparts of M3 confi rm that this was due mainly to further portfolio reallocations. These should be viewed more particularly in the light of the extreme

0

1

2

3

4

5

6

40

60

80

100

120

140

160

1999 2000 2001 2002 2003

CHART 19 FINANCIAL INDICATORS OF THE EURO AREA

Sources : ECB, Bloomberg, Stoxx Limited.(1) Compared to the rates on long-term government bonds.

(percentage points) (left-hand scale)

Yield on ten-year benchmark bonds

Interest rate spread on BBB corporate bonds (1)

Share prices (Dow Jones Eurostoxx Broad, index January 1999 = 100) (right-hand scale)

30

volatility on the equity and bond markets in the fi rst and second quarters respectively. Once the fi nancial markets had returned to normal, a reverse movement began in the third quarter. However, it was on a small scale compared to the earlier reallocations in favour of liquid assets. The low interest rates, and hence the low opportunity cost of holding assets included in M3, undoubtedly also played a part in the distinct preference for liquidity. Finally, the pattern of demand for M3 was probably connected in part with the uncertainty over economic growth and the outlook for employment, which may have encouraged the holding of precautionary savings instruments during the year.

Although the main components of M3 contributed to the sustained dynamism of this aggregate during the year under review, it was the narrow aggregate, M1, that was the main source of the monetary growth. For one thing, the currency in circulation continued the strong expansion which had begun in the second quarter of 2002, following the contraction associated with the introduction of the euro notes and coins on 1 January 2002. This process of normalisation is due to both euro area residents and non-residents re-establishing their stock of cash, a process which is refl ected in the growing proportion of the largest denomination notes. Also, overnight deposits felt the positive effects of their low opportunity cost and

the portfolio reallocations in favour of more secure liquid assets. The movement in the other components of M3, particularly short-term deposits and money market fund units, attractive in times of uncertainty, bears out the assumption that portfolio considerations were the decisive factor determining demand for money in 2003.

As regards the counterparts of M3 in the consolidated balance sheet of the MFIs, transactions with the rest of the world associated with portfolio reallocations evidently played a key role in monetary dynamics in 2003. Up to the middle of the year, net external assets grew substantially in terms of annual fl ows, but the pace slowed from the third quarter. The balance of payments fi gures for the euro area show that this movement was essentially due to portfolio investments in equities and debt instruments by residents and non-residents. Credit to the private sector, which is the main counterpart of M3, continued to expand at a more modest pace than that aggregate during the year under review. Credit to general govern-ment was an increasing source of money creation.

Liquidity in 2003 was therefore signifi cantly more plenti-ful than seemed necessary to fi nance non-infl ationary growth. However, the ECB Governing Council considered that this excess liquidity did not present a threat to price stability : for one thing, exceptional temporary factors such

0

3

6

9

12

0

3

6

9

12

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

CHART 20 M3 AND CONSUMER PRICES IN THE EURO AREA

(Three-month centred averages of the percentage changes compared to the corresponding month of the previous year)

Sources : EC, ECB.(1) Weighted average of the national indices of consumer prices until 1990, HICP

from 1991 onwards.

M3

Consumer prices (1)

p.m. Reference value for the growth of M3

–2

0

2

4

6

8

10

1999 2000 2001 2002 2003–2

0

2

4

6

8

10

CHART 21 M3 AND ITS COMPONENTS

(Contributions to the changes in M3, unless otherwise stated)

Source : ECB.

M3 (percentage changes compared to the corresponding quarter of the previous year)

Currency in circulation

Overnight deposits

Marketable instruments (M3-M2)

Other short-term deposits (M2-M1)

31


as portfolio reallocations were exerting a substantial infl u-ence on monetary developments; also, it seemed rather unlikely, in a context of weak economic growth, that this excess liquidity would quickly lead to excess spending.

Monetary policy decisions

During the year under review, the ECB Governing Council continued the easing of monetary policy which had begun in May 2001 and which, prior to 2003, had taken the form of fi ve interest rate cut decisions, the last dating from 5 December 2002. The key interest rates of the Eurosystem were lowered twice in 2003, by 25 basis points on 6 March and 50 basis points on 5 June. The minimum bid rate for the main refi nancing operations was therefore 2 p. c from that date, while the rates for the marginal lending facility and the deposit facility were set at 3 p.c. and 1 p.c. respectively. The offi cial interest rates of the Eurosystem are thus at an historically low level. The rate reductions, which were anticipated by the fi nancial markets on each occasion, were made on the basis of in-depth examination of the economic, monetary and fi nancial indicators using the dual analysis framework explained above.

At the Governing Council meeting on 6 March it emerged that the risks of infl ation had moderated since the rate reduction on 5 December 2002. On the one hand, the growth prospects had deteriorated in comparison with earlier predictions, owing particularly to the international tensions. Also, the substantial appreciation of the euro was having a moderating effect on consumer prices, notably through import prices. Although the monetary analysis indicated ample liquidity in the euro area, the Governing Council considered that it did not present a threat to prices.

At the meeting on 5 June, the Council found that the risks of infl ationary pressure of both internal and external origin had waned still further since the March decision. It then decided to make a bigger cut in rates in order to reduce the uncertainty over the revival of activity and restore the confi dence of the economic agents.

Monetary conditions

The monetary policy of the Eurosystem focuses on a medium-term objective, the maintenance of price stabil-ity, which is also the best contribution that it can make towards an economic environment conducive to growth and employment. Moreover, in 2003 the credibility of

0

200

400

600

1999 2000 2001 2002 2003

0

200

400

600

–200

–400 –400

–200

CHART 22 M3 AND ITS COUNTERPARTS IN THE BALANCE SHEET OF MONETARY FINANCIAL INSTITUTIONS

(Annual flows at end of quarter, billions of euro)

Source : ECB.

M3

Long-term financial liabilities (excluding capital and reserves)

Credit to general government

Credit to the private sector

Net external assets

Other net assets

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

1999 2000 2001 2002 2003

CHART 23 EUROSYSTEM AND MONEY MARKET INTEREST RATES

Source : ECB.(1) Fixed rate up to 28 June 2000, minimum bid rate thereafter.

Marginal lending facility

Deposit facility

Main refinancing operations (1)

Euro overnight interest average (EONIA)

Three-month offered rate (EURIBOR)

32

that policy enabled the Eurosystem to create monetary conditions which were likely to have a positive short-term impact on activity.

During the year under review, the real short-term interest rate in the euro area was at a very low level, in historical terms, particularly by comparison with the past level seen in the euro area country with the lowest infl ation rate, namely Germany. Most of the countries in the region had not achieved such a level since the 1970s.

The low real short-term interest rates and the abundance of liquidity bear witness to the major contribution which the Eurosystem has made towards supporting activity in the short term, without prejudicing the maintenance of price stability.

However, the movement in the real exchange rate of the euro counterbalanced the effect of the fall in real interest rates during the year under review. The strengthening of the euro against the US dollar, which began in the spring of 2002, continued in 2003 except in the third quarter when the trend was interrupted. Both the nominal and the real exchange rate consequently regained and even surpassed the level prevailing when the single currency was introduced. Although the equilibrium value is diffi -cult to determine, a number of studies reviewed by the ECB in its January 2002 Monthly Bulletin show that the appreciation which took place from the spring of 2002 to the autumn of 2003, both against the US dollar and as a weighted average, can be regarded as a return to a level closer to equilibrium. By way of illustration, assuming that the euro took over the role of reference currency from the German mark, the real average exchange rate against the US dollar in the fourth quarter of 2003 was very close to the average for the preceding thirty years.

2.2 Operational aspects

The operational framework of monetary policy deter-mines how to achieve the level of interest rates which conforms to the strategy by making use of the available instruments. The monetary policy of the Eurosystem is conducted primarily by means of open market opera-tions, especially the weekly allotments of two-week credits, the minimum bid rate for which signals the stance of interest rate policy and which are aimed at meeting the liquidity requirement of euro area credit institutions. Credit institutions in fact have a structural liquidity defi cit caused by ‘autonomous’ factors such as banknotes in circulation, exchange reserves and government deposits with the Eurosystem. This liquid-ity requirement is increased by the obligation imposed on the credit institutions to maintain reserves with the Eurosystem. The compulsory reserves only have to reach the required level on average over a one-month maintenance period, which makes it possible to absorb very short-term fl uctuations in liquidity shocks and thus to help stabilise money market interest rates. Lastly, a system of standing facilities enables credit institutions to borrow or deposit overnight funds at pre-announced rates, which constitute upper and lower limits for over-night interbank rates.

–2

0

2

4

6

8

1975

1980

1980

1990

1995

2000

2003

–2

0

2

4

6

8

50

60

70

80

90

100

110

120

130

140

150

1975

1980

1985

1990

1995

2000

2003

50

60

70

80

90

100

110

120

130

140

150

CHART 24 INDICATORS RELATING TO MONETARY CONDITIONS

(Quarterly averages)

Sources : BIS, EC, ECB.(1) Three-month rate, deflated by the rise in the consumer price index over the past

twelve months.(2) Nominal exchange rate of the German mark (1973-1998) or the euro

(1999-2003) against the US dollar, deflated by the ratio between the consumer price indices in the United States and Germany (1973-1998) or the euro area (1999-2003).

Average 1973-2002

REAL EXCHANGE RATE OF THE GERMAN MARK (1973-1998) AND OF THE EURO (1999-2003) AGAINST THE US DOLLAR

(2)

(average 1973-2002 = 100)

REAL SHORT-TERM INTEREST RATE (1)

IN GERMANY (1973-1998) AND IN THE EURO AREA (1999-2003)

33


During 2003, the liquidity requirement averaged 234.2 billion euro, about 26 p.c. up against the previous year and 7 p.c. higher compared to 2001. The formation of compulsory reserves represented practically 56 p.c. of that requirement, against almost 70 p.c. in 2002. The increase in the credit institutions’ liquidity requirement and the declining share of that requirement represented by the compulsory reserves are essentially due to the substantial increase in banknotes in circulation in the euro area.

Net gold and foreign exchange assets contracted, the main reason being the appreciation of the euro during the year under review. In the consolidated and simplifi ed fi nancial statement of the Eurosystem, that reduction in the value of the foreign exchange reserves has its counter-part in the “miscellaneous (net)” item. Furthermore, customer and portfolio transactions also led to a decline in the net foreign exchange position of the Eurosystem.

Finally, some national central banks proceeded to sell off gold in accordance with the agreement on the gold assets of central banks, concluded on 26 September 1999. Those sales totalled just 1.8 billion euro.

The liquidity requirement increased steadily during the year under review, boosted by the growing demand for banknotes. The amount of cash held in the form of bank-notes had fallen sharply in the run-up to the introduction of euro notes and coins, but these cash holdings were built up again faster than was generally expected. A number of factors may have contributed to this strong growth. For instance, the existence of notes denominated in substantially higher values than those of the old banknotes in the majority of the euro area countries would amplify demand for banknotes. Also, the increasingly close links between the euro area and neighbouring countries, plus the euro’s status as a reserve currency, would accentuate demand from non-residents. Finally, the low interest rates

TABLE 14 CONSOLIDATED AND SIMPLIFIED FINANCIAL STATEMENT OF THE EUROSYSTEM

(Billions of euros)

Source : ECB.(1) A plus sign indicates a factor expanding liquidity, a minus sign indicates a factor reducing liquidity.(2) Including debt certificates issued and securities acquired before 1 January 1999.(3) In 2003, excluding national currency banknotes.

2002 2003

Average daily outstandingamounts :

liabilities (–) or assets (1)

Average daily changes

in absolute value

Average daily outstandingamounts :

liabilities (–) or assets (1)

Average daily changes

in absolute value

Operations unrelated to monetary policy (2) . . . . . . . . . . . . . . . . –56.6 2.5 –103.4 2.1

Notes in circulation (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –317.8 1.1 –367.3 0.6

Net gold and foreign exchange assets . . . . . . . . . . . . . . . . . . 378.9 0.3 334.7 0.2

Government deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –48.9 1.9 –51.0 1.9

Miscellaneous (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –68.8 1.3 –19.8 0.9

Average reserve requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . –129.9 0.0 –130.8 0.0

Total : liquidity requirement of credit institutions . . . . . . . . . . . . –186.5 2.5 –234.2 2.1

Open market operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187.3 1.7 234.8 2.2

Main refinancing operations . . . . . . . . . . . . . . . . . . . . . . . . . 132.0 1.4 189.9 2.1

Longer-term refinancing operations . . . . . . . . . . . . . . . . . . . . 54.8 0.0 45.0 0.0

Structural operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 0.0 0.0

Fine-tuning operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.4 0.0 0.0

Total : residual money market surplus . . . . . . . . . . . . . . . . . . . . 0.8 3.1 0.6 3.7

Standing facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.4 0.0 0.6

Marginal lending facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.3 0.3 0.3

Deposit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.2 0.2 –0.3 0.3

Difference between current account deposits and the average reserve requirement : surplus (–) or deficit . . . . . . . . . . . . . . . –0.8 3.6 –0.6 3.8

34

and low infl ation outlook reduce the opportunity cost of holding cash.

The Eurosystem’s open market operations covered the whole of the credit institutions’ liquidity defi cit. The main refi nancing operations, which consist in the granting of temporary liquidity once a week, normally for a two-week period, represent the bulk of those operations. During the year under review, fi fty-two main refi nancing operations of this type were concluded, for an average volume of 98.3 billion euro.

The overall level of bids depends on the cost of raising fi nance on the interbank market, which is in itself sub-ject to the infl uence of expectations regarding monetary policy decisions and liquidity conditions. The bid spread, which can be measured by the difference between the weighted average rate on the main refi nancing opera-tions and the minimum bid rate, also depends on the uncertainty concerning the marginal rate and the credit institutions’ aversion to the risk of not obtaining suffi cient liquidity from the central bank.

On two occasions in 2003, namely 4 March and 4 June, bids were at a low level, so that they could be allotted in full at the minimum bid rate. The low level of the total bids submitted bore witness to the fact that market operators were expecting monetary policy to

be eased, as did in fact happen. Since the volumes allotted were well below the volume necessary to meet the reserve requirements, the ECB took care to inject more liquidity at the next tender. In March, in order to re-balance the amounts of the successive tenders, this injection of liquidity was effected by an additional main refi nancing operation with a one-week maturity, conducted simultaneously with the usual two-week maturity operation. However, this was not suffi cient to ease the tension on the money market, so that the spread between the Eonia rate and the minimum bid rate became much wider.

During the year under review, the Eurosystem also conducted such “split operations” – namely an additional main refi nancing operation with a maturity of one week, in parallel with the normal operation which has a two-week maturity – on two occasions, namely 7 May and 9 July – in order to adjust the volume of the two main re fi nancing operations in progress. At the beginning of May, the balance had been disrupted by the large tender on 23 April, when the rise in demand for liquidity, associated with the Easter long weekend, had been overestimated ; in July, the imbalance resulted from the low level of bids submitted several weeks previously.

During 2003, the Eurosystem also conducted twelve longer term refi nancing operations in the form of three-month credits. The volume of each allotment was 15 bil lion euro. These were multiple rate allotments for a preannounced volume, which do not provide any monetary policy signal.

Finally, the Eurosystem conducted a fi ne-tuning operation on only one occasion. On 23 May, following substantial recourse to the marginal lending facility immediately before the end of the reserve maintenance period, the ECB conducted an operation designed to withdraw liquid-ity in order to restore neutral liquidity ratios. A tender was launched for fi xed-rate forward deposits and the volume allotted totalled 3.9 billion euro.

Although it is generally acknowledged that the frame-work for operating the Eurosystem’s monetary policy has functioned well since the euro was introduced in 1999 – short-term interest rates have generally displayed low volatility and money market conditions have been clear and stable – the ECB Governing Council decided in January 2003, following public consultation, to make two changes to that framework. These measures are intended primarily to ensure that speculation over interest rate adjustments during a reserve maintenance period does not affect the money market. In the past, such speculation has triggered temporary volatility in very short-term rates.

200

240

280

320

360

400

1995 1997 1999 2001 2003200

240

280

320

360

400

CHART 25 NOTES ISSUED BY THE EUROSYSTEM, OUTSTANDING AMOUNTS IN REAL TERMS

(Monthly averages, billions of euro)

Sources : EC, ECB.(1) Outstanding amount adjusted from 1 January 2003 to take account of national

currency banknotes still in circulation, and deflated by the HICP (base = January 1994).

Notes issued by the Eurosystem, outstanding amounts in real terms (1)

Exponential trend 1994-2000

35


First, the reserve maintenance periods will be adapted. They will begin on the main refi nancing operation settlement day following the Governing Council meeting scheduled to conduct the monthly evaluation of the monetary policy stance. Adjustments to the standing facility rates will in

future coincide with the start of a new reserve maintenance period. Second, the maturity of the main refi nancing operations will be reduced from two weeks to one week, which means that these operations will no longer straddle different reserve maintenance periods.

150

200

250

300

350

23/1

23/2

23/3

23/4

23/5

23/6

23/7

23/8

23/9

23/1

0

23/1

1

23/1

2

150

200

250

300

350

–20

–10

0

10

20

23/1

23/2

23/3

23/4

23/5

23/6

23/7

23/8

23/9

23/1

0

23/1

1

23/1

2

–20

–10

0

10

20

–80

–40

0

40

80

–80

–40

0

40

80

23/1

23/2

23/3

23/4

23/5

23/6

23/7

23/8

23/9

23/1

0

23/1

1

23/1

2

CHART 26 OPERATIONAL CONDUCT OF THE EUROSYSTEM’S MONETARY POLICY IN 2003

(Daily outstanding amounts, billions of euro, unless otherwise stated)

Source : ECB.

Weighted average rate of the main refinancing operations

Euro overnight index weighted average (Eonia)

LIQUIDITY REQUIREMENT AND OPEN MARKET OPERATIONS

COVERAGE OF THE RESIDUAL MONEY MARKET BALANCE

Liquidity requirement increased by the reserve requirement

INTEREST RATE SPREADS IN RELATION TO THE MINIMUM BID RATE(basis points)

Eurosystem open market operations

Net recourse to the standing deposit and marginal lending facilities (–)

Cumulative surplus or deficit (–) of assets on current accounts as a percentage of the reserve requirements

Reserve maintenance periods



36

These changes will avert the risk of underbidding during the weekly tenders, caused by expectations of interest rate cuts. They will also prevent money market rates from deviating too far from the minimum bid rates on account of expectations of rate increases, which could blur the signals of the monetary policy stance. They will therefore make the operating framework more effi cient by considerably reducing the number of instances of high volatility and reinforcing the signalling effect of the minimum bid rate.

These two measures are to be implemented by March 2004. To allow for the transition to the new defi nition of the reserve maintenance periods, the period beginning on 24 January 2004 will not end until 9 March. On that date, the fi rst one-week main refi nancing operation will be con-ducted. The fi rst reserve maintenance period conforming to the new framework will start on 10 March 2004.

37

OUTPUT AND EXPENDITURE IN BELGIUM

3.1 Summary

The Belgian economy did not escape the third consecu-tive year’s decline in growth of activity in the euro area, which came close to stagnating in 2003. As a rule, the phases of accelerating and decelerating GDP growth are synchronised between Belgium and the euro area, as both are subject to the same infl uences originating from the world economy and the international markets. The Belgian economy and that of the euro area in fact respond in comparable ways owing to the closely integrated trade and fi nancial fl ows and the growing degree of conver-gence and coordination of economic policy, even unifi ca-tion in the case of monetary policy.

3. Output and expenditure in Belgium

However, the scale of the cyclical movements is greater in Belgium, mainly because of its more open economy. Thus, the deceleration which began in 2001 was more abrupt at fi rst in Belgium. Conversely, the recovery in 2002 was stronger and occurred sooner than in the euro area, where moreover it ran out of steam in the second half of the year and slowed to a mediocre rate. Thus, the Belgian economy started the year under review with activ-ity expanding slightly faster, so that – although the move-ments were comparable during 2003 – Belgium’s growth averaged 1.1 p.c. against 0.5 p.c. for the euro area.

Belgian producers once again faced a rather unfavourable international economic environment, at least up to the second half of the year, when the recovery also spread to the European continent. Despite gaining momentum in the United States and Asia, demand was affected by the apathy in the euro area, where fi rms continued to cut back their investment and limit recruitment in order to restore their profi tability and their balance sheet position.

Moreover, oil prices denominated in dollars remained high, on average, during the year under review, despite a temporary easing in the spring, as geopolitical tensions ebbed away. In addition, the euro’s appreciation, having begun early in 2002, was maintained, thus eroding in a fragile economic context the competitive advantage built up at the time of the euro’s depreciation from 1999 to 2001. Having gained 19 p.c. against the US dollar in 2002, the euro strengthened further in 2003, the appre-ciation reaching 20 p.c. by the end of the year. The effec-tive euro exchange rate, calculated by taking account of the euro’s movement not only against the dollar but also against the other currencies according to the respective weights of the various markets in the total exports of the euro area, increased by 21 p.c. over the two years as a whole. Nevertheless, the effective exchange rate for the euro area may give a distorted idea of the real impact of

–2

0

2

4

6

1995

1997

1999

2001

2003

–2

0

2

4

6

CHART 27 GDP IN BELGIUM AND IN THE EURO AREA

(Percentage changes at constant prices compared to the corresponding quarter of the previous year)

Sources : EC, NAI.

Belgium

Euro area

38

exchange rate movements on the competitiveness of the member countries, since that indicator does not cover trade within the euro area. Thus, the rise in the effective exchange rate calculated for Belgium on its own, taking account of its trade with the other euro area countries, was limited to 5.7 p.c. over the same period.

Such exchange rate movements automatically modify the relative prices of foreign trade : the economy whose cur-rency appreciates sees its import prices fall and its export prices rise against those of competitors. However, the transmission of exchange rate variations to prices may be curtailed by the way in which profi t margins are fi xed : third country exporters may increase their selling prices expressed in their national currency without entirely losing the advantage gained from the depreciation, while producers whose currency has strengthened may accept a lower profi t margin so as to limit the loss of competi-tiveness on their export markets. In addition, they benefi t from a reduction in their costs, particularly the cost of imported inputs.

In so far as these adjustments are neither instantaneous nor complete, the changes in the prices of foreign trade cause world demand to be reallocated among the various currency areas, to the detriment of the countries whose products have become more expensive. The fall in exports by econo-mies whose currency appreciates has a feedback effect on their domestic demand, but conversely, demand is under-pinned by income gains resulting from the improvement in the terms of trade and, possibly, a reduction in interest rates in a context of diminishing imported infl ationary pressures. The effects on fi nal demand – both foreign and domestic – are in turn refl ected in imports, as these are also infl uenced by a price advantage in relation to domestic production.

The results of a simulation carried out using the Bank’s econometric model, discussed in more detail in Box 3, show that the effects on Belgian economic growth of an appreciation of the euro comparable to that recorded in 2002 and 2003 are felt mainly during the period in which the appreciation occurs, and are relatively limited. On the other hand, the impact on consumer prices in Belgium is both more substantial and more gradual, continuing to be felt well after that period.

Box 3 – The effect of a euro appreciation on the Belgian economy

The effect on the Belgian economy of a steady 20 p.c. appreciation spread over two years and concerning the effective exchange rate of the euro for the euro area – a shock comparable to that seen in 2002 and 2003 – was assessed by an econometric simulation. The results obtained, which confi rm those of similar exercises conducted by other institutions, indicate that the reaction of the real variables is swift but relatively limited in terms of GDP, while prices react more gradually and the effect is greater. However, the reactions need to be assessed as orders of magnitude : in reality, the economy has been subject to a whole series of very diverse shocks, and it is not always easy to see how the effects are spread over time; for example, the substantial depreciation of the euro from 1999 to 2001 was still infl uencing prices after that period.

First, the effect of the euro’s appreciation on the various currency areas was measured using the NiGEM global economic model designed by the National Institute for Economic and Social Research (NIESR). This revealed that the growth rate of the export markets relevant to Belgium would fall by around half a percentage point during the two years concerned.

Taking account of this change in foreign demand, the results obtained from the Bank’s model for the Belgian economy indicate that the growth of exports would slow by around 1.5 percentage points over two years, with the effects of the euro appreciation disappearing after the second year. The infl uence on imports appears to be less great, so that the contribution of net exports to growth would become slightly negative. Although domestic demand in Belgium would be affected by the slackening pace of exports, it would be stimulated to some extent by a fall in interest rates and by the rise in household purchasing power following the easing of imported infl ation. Overall, the 20 p.c. appreciation of the euro would probably slow GDP growth by 0.3 percentage point in the fi rst year and 0.4 in the second year, its impact subsequently becoming negligible.

!

39


3.2 Development of activity

Activity growth in Belgium was again hesitant in 2003, up to the beginning of the second half of the year. Altogether GDP grew by 1.1 p.c. in real terms, an annual growth rate only a little higher than the 0.7 p.c. recorded in 2001 and 2002. Belgium had not experienced such a protracted period of weak growth since the beginning of the 1980s.

The persistently low growth rate during the past few years was refl ected in a fairly fl at cyclical profi le with a succes-sion of small-scale, short-lived phases of acceleration and slowing down. Having bottomed out at the end of 2001, after declining for four quarters, activity picked up in the fi rst three quarters of 2002, with GDP growing by at least 0.6 p.c. per quarter. However, that recovery had stalled by the end of 2002, with activity expanding by just 0.2 p.c. in the last quarter of 2002 and the fi rst quarter of 2003, and actually dropping slightly in the second quarter of 2003. Subsequently, activity regained momentum, with GDP expanding by 0.5 p.c. in the third quarter.

The movement in business confi dence, measured by the overall synthetic indicator of business activity, clearly refl ects the various phases of decelerating and accelerat-ing economic growth. Thus, at the time when growth was slackening, at the end of 2002 and in early 2003, business confi dence tended to decline; in the spring the synthetic indicator actually fell to its lowest level for seven years. Apart from this downward trend, the period featured high volatility in the gross confi dence curve, particularly in March and June when the indicator dropped sharply. The uncertainty relating to the confl ict in Iraq was doubt-less a factor in the spring, but the rapid ending of the confl ict makes it diffi cult to explain why confi dence was quite severely shaken on several occasions. A strong and widespread revival in business confi dence then emerged from the third quarter onwards, coinciding with the recovery of activity. Apart from manufacturing industry, this concerned business services and the building sector. In industry and business services, the scale of the recovery over a fi ve-month period from June to November was unprecedented.

The gains in the terms of trade would fade out after two years, as exporters progressively adapted to the lower import prices. In view of these lower prices and the wage moderation resulting mainly from the automatic indexation system, the pace of consumer price rises would slow by 0.4 percentage point in the fi rst year and 1.5 and 2 points respectively in the two subsequent years.

EFFECTS ON THE BELGIAN ECONOMY OF A STEADY RISE IN THE EFFECTIVE EXCHANGE RATE FOR THE EURO AREA OF 20 P.C. OVER A TWO-YEAR PERIOD

(Percentage points, deviations from the annual movements observed without any appreciation of the euro)

Source : NBB.(1) Contribution to GDP growth.

Year 1 Year 2 Year 3

Export markets relevant to Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . –0.7 –0.5 0.3

Activity

GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.3 –0.4 –0.1

Domestic demand (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 0.1

Net exports (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.3 –0.4 –0.1

Exports of goods and services . . . . . . . . . . . . . . . . . . . . . . . . . –1.3 –1.5 0.1

Imports of goods and services . . . . . . . . . . . . . . . . . . . . . . . . . –0.9 –0.7 0.5

Prices

Terms of trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 1.2 –0.1

Export prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.9 –2.9 –2.5

Import prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.7 –4.0 –2.4

Consumer prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.4 –1.5 –2.0

40

As usual, owing to their amplitude, the fl uctuations in activity in manufacturing industry had a major infl uence on the cyclical profi le of GDP. After a 3.5 p.c. contrac-tion in annual terms at the end of 2001, manufacturing industry had been the driving force behind the embryonic recovery in 2002. However, that recovery subsequently faltered since the value added of manufacturing industry contracted from the third quarter of 2002 onwards, and continued to shrink for four consecutive quarters. In the second quarter of 2003, activity in manufacturing industry therefore declined by 3 p.c. year on year. The chemical industry and metallurgy in the broad sense accounted for 0.9 and 0.8 percentage point respectively of this decline. These two sectors are important in Belgium, and the slowdown in their activity was particularly acute. They are actually highly export-oriented, which makes them more vulnerable to exchange rate movements. In the third quarter of 2003, these sectors produced a modest recovery and the level of activity stabilised throughout manufacturing industry.

The recovery in market services had been much more modest than in manufacturing industry in the fi rst half of 2002, with the year-on-year change in value added remaining negative. Thereafter, it gradually strengthened, fuelling GDP growth, with market services achieving expansion of 2 p.c. in the third quarter of 2003 com-pared to the corresponding period of the previous year. This growth originated mainly from business-related serv-ices. Although the activity of that sector had not regained

–2

–1

0

1

2

3

4

5

–25

–20

–15

–10

–5

0

5

10

2000 2001 2002 2003

CHART 28 GDP AND BUSINESS SURVEY INDICATOR


Sources : NAI, NBB.(1) Calendar adjusted data.

Gross series

Smoothed series

Percentage changes compared to the previous quarter

Percentage changes compared to the corresponding quarter of the previous year

GDP at constant prices (1) (left-hand scale)

Overall synthetic business survey curve (right-hand scale)

e

–4

–2

0

2

4

6

8

–30

–25

–20

–15

–10

–5

0

5

10

2000 2001 2002 2003

–1

0

1

2

3

4

–10

–5

0

5

10

15

20

2000 2001 2002 2003

CHART 29 VALUE ADDED IN THE MAIN BRANCHES OF ACTIVITY AND BUSINESS SURVEY INDICATORS


Sources : NAI, NBB.(1) Calendar adjusted data.(2) In the case of market services, the curve of business-related services.

MANUFACTURING INDUSTRY

MARKET SERVICES

Value added at constant prices (1) (left-hand scale)

Percentage changes compared to the corresponding quarter of the previous year

Smoothed series

Gross series

Percentage changes compared to the previous quarter

Synthetic business survey curve (2) (right-hand scale)

41


the dynamism of the late 1990s, when it was driven by the economic boom and by the preparations for the new millennium and the introduction of the euro, the growth of value added was still distinctly higher than in 2002. From the third quarter of the year under review, that recovery was accompanied by a steep rise in confi dence in this sector, mainly in IT services and renting, with the United States and the euro area seeing a comparable pat-tern. Apart from business-related services, there was also an improvement in the transport and communications branch following the weak results of the previous year, especially in air transport. In contrast, activity remained sluggish in the banking sector.

3.3 Main categories of expenditure

While GDP growth in 2003 was hardly higher than the fi gure for the two preceding years, the contributions made by the main categories of expenditure were signifi cantly different. Thus, in contrast to 2002, domestic expenditure excluding change in stocks – particularly private consumption expenditure – performed its traditional role as the main engine of economic growth, accounting for 1.8 percentage points.

Growth in 2002 actually appears atypical in that it was almost exclusively based on a large contribution by the change in stocks totalling 0.8 percentage point, the highest fi gure since 1987. The anomalies of the recent economic cycle explain this abnormal picture : while fi rms had drastically reduced their stock levels from the second half of 2001, in response to the slump in demand, stocks increased by the second half of 2002, when the fragile economic recovery came to a halt. The fact that this stock building was unintentional is also apparent from the Bank’s survey results, which indicate that business managers in manufacturing industry took a rather less favourable view of their stock levels in the same period. Although the process of stock building slowed down during 2003, the change in stocks still contributed 0.5 percentage point to GDP growth over the year as a whole.

The contribution made by net exports of goods and services has been declining since 2000. In 2003, it was negative for the second successive year, totalling 1.3 percentage points, in stark contrast to the small, positive contribution which foreign trade has generally made since 1993. That negative contribution was due to a 3.1 p.c. rise in the volume of imports, whereas

TABLE 15 GDP AND MAIN CATEGORIES OF EXPENDITURE, AT 2000 PRICES

(Percentage changes compared to the previous year, calendar adjusted data)

Sources : NAI, NBB.(1) Contribution to the change in GDP.(2) These figures are influenced by the reclassification of the public radio and television companies from the non-financial corporations sector to the general government sector.

Without that operation, final consumption expenditure of individuals was up by 0.9 p.c. in 2002, that of general government was up by 1.3 p.c., gross fixed capital formation by enterprises fell by 2.6 p.c. and that of general government increased by 0.6 p.c., final domestic expenditure grew by 0.3 p.c. and GDP by 0.8 p.c.

1999 2000 2001 2002 (2) 2003 e

Final consumption expenditure of individuals . . . . . . . . . . . . . . 2.3 3.4 0.9 0.4 1.7

Final consumption expenditure of general government . . . . . . 3.5 2.7 2.5 1.9 2.3

Gross fixed capital formation . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 3.5 0.5 –2.1 1.9

Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 0.9 –0.6 –1.6 1.2

Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 4.6 2.5 –2.7 2.2

p.m. Excluding purchases of public buildings . . . . . . . . . . . . 1.6 –2.4 2.3

General government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.4 2.0 –12.4 1.6 1.2

p.m. Excluding sales of public buildings . . . . . . . . . . . . . . . . –5.4 –1.5 0.9

p.m. Total final domestic expenditure . . . . . . . . . . . . . . . . . . . . 3.0 3.3 1.2 0.2 1.9

Change in stocks (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.6 0.2 –0.7 0.8 0.5

Exports of goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 8.6 1.3 0.8 1.5

Imports of goods and services . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 8.4 1.1 1.1 3.1

p.m. Net exports of goods and services (1) . . . . . . . . . . . . . . . . . 0.8 0.4 0.2 –0.3 –1.3

GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 3.7 0.7 0.7 1.1

42

exports grew by 1.5 p.c. at constant prices over the same period.

The acceleration in exports over the year as a whole conceals a temporary but sharp slowdown on the export markets during the fi rst half of the year, following a brief revival in the previous year. The rate of change in the volume of exports compared to the corresponding period of the previous year thus declined from growth of almost 4 p.c. at the end of 2002 to stabilisation in the second quarter of 2003. However, a recovery began in the third quarter, on the heels of strengthening activity among Belgium’s main trading partners. Thus, the business survey indicator relating to foreign orders in manufacturing industry improved from May onwards.

In general, the movement in foreign demand continued to have a dominant infl uence on Belgium’s exports, more so than movements in the euro. However, the rise in the nominal effective exchange rate for Belgium from the beginning of 2002 also had signifi cant repercussions on foreign trade volumes and prices, though the effect on trade within the euro area was different from that on trade with non-member countries.

According to indices based on detailed EC data relating to Belgium, adjusted to exclude transit trade between non-residents, it is evident that exports were more dynamic outside the euro area than within it, owing to the slack-ness of activity there. Thus, the revival seen at the begin-ning of 2002 in the growth of the volume of exports had initially been triggered by demand from trading partners outside the euro area, and it had also been strongest in trade with those partners. Similarly, the slowdown in the fi rst half of 2003 was more acute in the case of exports outside the euro area, possibly because Belgian fi rms became less competitive on those markets following the appreciation of the euro. Thus, since the beginning of 2002 the pattern of exports outside the euro area has been volatile, but still generally more favourable than for exports within the euro area.

However, the growth in the volume of exports of goods outside the euro area was accompanied by a drop in prices – measured on the basis of unit values – of around 6 p.c. in 2002 and in the fi rst three quarters of 2003, whereas there was hardly any change in export prices within the euro area over the same period. Much of that divergence

–6

–4

–2

0

2

4

6

8

10

12

14

–40

–30

–20

–10

0

10

20

30

1999 2000 2001 2002 2003

CHART 31 EXPORT MARKETS, EXPORTS OF GOODS AND SERVICES AT CONSTANT PRICES AND OPINION ON FOREIGN ORDERS IN MANUFACTURING INDUSTRY


Sources : EC, NAI, NBB.(1) Percentage changes compared to the corresponding period of the previous year.(2) Calendar adjusted data.(3) Balance of replies to the question in the monthly business survey concerning

foreign orders.

Export markets (1)(left-hand scale)

Smoothed seriesGross series

Volume of exports (1) (2)

Foreign orders in manufacturing industry (3)

(right-hand scale)

–2

–1

0

1

2

3

4

–2

–1

0

1

2

3

4

1995

1997

1999

2001

CHART 30 MAIN CATEGORIES OF EXPENDITURE

(Contribution to the change in GDP, percentage points, calendar adjusted data)

Sources : NAI, NBB.

Net exports of goods and services

Change in stocks

Domestic expenditure, excluding change in stocks

p.m. GDP

2003

e

43


is probably due to pricing to market on the part of Belgian fi rms, whereby they responded to the stronger euro by cutting their export prices outside the euro area, in order to safeguard their competitiveness.

As regards imports, the decline in prices in 2002 and at the beginning of the year under review was also more pronounced for goods from countries outside the euro area, even though the higher oil prices have to some extent counterbalanced the effect of the euro’s apprecia-tion. Nevertheless, that appreciation made goods from outside the euro area cheaper in relation to Belgian goods and goods produced by other euro area coun-tries. Indeed, after the third quarter of 2002, some while after the start of the appreciation, imports of goods from countries outside the euro area rose faster than those from the euro area.

Altogether, the volume of imports of goods and serv-ices grew by 3.1 p.c. during the year under review, so that this growth outpaced that of exports, owing to the increase in domestic expenditure. Nevertheless, the trends in exports and imports are closely linked : thus, for the period from the beginning of 1999 to the third quarter of 2003, the correlation between these two fi gures was 0.98 on the basis of the quarterly national accounts. Such a correlation is due to the scale of intra-group and intra-sectoral trade, a consequence of the increasing globalisation of production processes which is refl ected in a particularly high import content in exports. This phenomenon is particularly apparent in Belgium and the Netherlands, mainly because of their central location in Europe.

85

90

95

100

105

110

2001 2002 200385

90

95

100

105

110

2001 2002 2003

85

90

95

100

105

110

2002 200385

90

95

100

105

110

2001 2002 20032001

CHART 32 EXPORTS AND IMPORTS OF GOODS BY BELGIUM

(Data adjusted for seasonal and calendar effects, indices first quarter of 2001 = 100)

Sources : EC, NBB.(1) Measured on the basis of unit value indices.

Total Euro area Rest of the world

VOLUME OF EXPORTS VOLUME OF IMPORTS

EXPORT PRICES (1) IMPORT PRICES (1)

44

While private consumption was expected to be the main factor supporting economic growth in 2003, its relative vigour was surprising, particularly during the fi rst half of the year. Except for the stagnation during the last quarter of 2002, private consumption actually grew at a relatively steady and sustained rate from the second quarter of 2002, expanding by around 0.5 p.c. quarter on quarter. Thus, after two years of modest growth totalling less than 1 p.c., fi nal consumption expenditure of individuals expanded by 1.7 p.c. in real terms in 2003.

This buoyancy of fi nal consumption expenditure of individuals occurred despite very modest growth in disposable income during the year under review, totalling 0.7 p.c. in real terms – the lowest level since 1997 – against 1.3 p.c. the previous year. After rising for two years, the savings ratio therefore declined, falling by 0.8 percentage point of disposable income. In 2001 and 2002, in the face of growing uncertainty over the general economic situation, and the employment market in particular, households in fact reduced the share of their disposable income allocated to consumption expenditure. In retrospect, that development therefore does not appear to be the beginning of a turnaround in the downward trend in the savings ratio since the mid 1990s; that decline was brought about by the reduction in the level of public debt and the associated fall in the share of disposable

income represented by interest income, of which little is probably used for consumption. Despite the decline during the year under review, the savings ratio was still 15.4 p.c. of disposable income, higher than the low point of 2000. Furthermore, consumer confi dence as revealed by the Bank’s survey remained relatively weak in 2003, particularly as regards the unemployment prospects. However, confi dence tended to waver signifi cantly, being affected by such factors as the temporary shocks due to announcements concerning the Iraq war and a major restructuring in the car industry.

The slackening growth of real disposable income was largely due to the deceleration in wages and salaries, the main component of the primary income of individuals, down from 4 p.c. in 2002 to 1.6 p.c. at current prices in 2003. The decline in paid employment was slightly greater than in the previous year, and the rise in com-pensation per employee showed a marked deceleration, because of smaller increases associated with wage index-ation combined with smaller real pay rises than in 2002. Conversely, the rise in immovable property incomes and self-employed earnings – which make up the item “gross operating surplus and gross mixed income” – broadly quickened its pace, from 0.8 p.c. in 2002 to 3.4 p.c. in the year under review. Retailers’ income benefi ted from the buoyancy of fi nal consumption expenditure of households, activity in the building sector picked up slightly and incomes of health care professionals increased sharply, boosted by increased expenditure in that sector. In contrast, movable property incomes were hit by the decline in short- and long-term interest rates. Overall, primary incomes saw only a small rise in 2003, namely 1.5 p.c. at current prices, continuing the deceleration which began in 2001. However, the adverse impact on disposable incomes was moderated somewhat by the reduction in net current transfers between indi-viduals and the other sectors of the economy. As in the previous year, the growth of transfer payments slowed down owing to the abolition of the complementary crisis contribution, implementation of the personal income tax reform and the effect of the slower growth of wages and salaries on taxes and parafi scal levies. On the other hand, there was a rise in social security benefi ts, particu-larly unemployment pay.

Apart from their consumption expenditure, individuals also changed their behaviour in regard to investment in housing. After falling in 2001 and 2002 by 0.6 and 1.6 p.c. respectively at constant prices, such investment began to expand during the year under review. However, this expansion remained modest, totalling just 1.2 p.c. The low level of mortgage interest rates probably contin-ued to encourage demand for housing. Furthermore, the

–2

–1

0

1

2

3

4

5

12

14

16

18

20

22

24

1987

1989

1991

1993

1995

1997

1999

2001

2003

CHART 33 PRIVATE CONSUMPTION, DISPOSABLE INCOME AND SAVINGS RATIO

(Percentage changes at constant prices compared to the previous year, unless otherwise stated)

Sources : NAI, NBB.

Private consumption

Disposable income(left-hand scale)

Savings ratio (percentage of disposable income) (right-hand scale)

e

45


TABLE 16 GROSS DISPOSABLE INCOME OF INDIVIDUALS AT CURRENT PRICES


Sources : NAI, NBB.(1) These are net amounts, i.e. the difference between income or transfers received from other sectors and those paid to other sectors, excluding transfers in kind.(2) Figures deflated by the deflator of final consumption expenditure of individuals, at 2000 prices.(3) Gross savings, including the change in the net equity of households in pension funds, as a percentage of gross disposable income, including the change in the net equity of

households in pension funds.

1999 2000 2001 2002 2003 e p.m.2003 e,billions

of euros

Gross primary income . . . . . . . . . . . . . . . . . . . . . 3.6 5.1 4.6 2.8 1.5 209.2

Wages and salaries . . . . . . . . . . . . . . . . . . . . . 5.2 4.5 5.7 4.0 1.6 144.9

Employment . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 2.5 1.9 –0.3 –0.4

Wages per person . . . . . . . . . . . . . . . . . . . . 3.4 2.0 3.7 4.3 2.0

Gross operating surplus and gross mixed income 2.8 3.4 1.7 0.8 3.4 41.1

Income from movable property (1) . . . . . . . . . . –3.8 11.8 3.7 –0.9 –2.9 23.2

Current transfers (1) . . . . . . . . . . . . . . . . . . . . . . . 5.0 7.0 6.4 1.7 –3.1 –37.8

Gross disposable income . . . . . . . . . . . . . . . . . . . 3.3 4.7 4.2 3.0 2.5 171.4

p.m. At constant prices (2) . . . . . . . . . . . . . . . . . . 2.0 2.3 1.7 1.3 0.7 161.5

Final consumption expenditure . . . . . . . . . . . . . . 3.5 5.8 3.3 2.1 3.6 146.6

Savings ratio (3) . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 14.5 15.4 16.2 15.4

marked expansion in the scope for internal fi nancing during the year under review, as companies saw their gross operating surplus increase by 8.7 p.c. in nominal terms, after falling for two consecutive years. Moreover, as detailed in the chapter on fi nancial accounts and fi nancial markets, Belgian non-fi nancial corporations still have a lower level of debt than their counterparts in the euro area. External fi nancing conditions also displayed divergent movements in the year under review. On the one hand, share prices continued to fall, in annual aver-age terms, even though the uncertainty still prevailing on the stock markets at the beginning of the year ebbed away in the following months, spurring a progressive rise in prices. Also, the rate charged by banks on investment loans persisted at a fairly low level, below that of 2002, even though the spread in relation to the benchmark market rate increased by more than 40 basis points over the year as a whole.

The very steep rise in the gross operating surplus of companies in 2003 originated both from the simultane-ous acceleration in the volume of sales on the domestic and export markets, and from the substantial increase in the gross unit operating margin, due partly to the improvement in the terms of trade resulting from the euro’s appreciation as analysed at the beginning of this

accelerating property prices seen on the secondary market since 2001 may have played a similar role.

Gross fi xed capital formation by enterprises grew by 2.2 p.c., on average, over 2003 as a whole, after contracting by 2.7 p.c. in 2002. However, against a background of low existing capacity utilisation rates this recovery appeared fragile in that it was not steady through the year, a further marked fall in investment being recorded in the third quarter. Overall, the decline in investment during the current cycle – which began in the second quarter of 2001 – has proved particularly steep; thus, since 2002 the net capital stock has grown at an annual rate well below its average of 2.4 p.c. over the 1995-2003 period. However, the rising capacity utilisation rate in manufacturing industry from the third quarter of 2003, after four quarters of decline, could indicate that the process of adjustments to the capital stock is easing off.

It therefore seems that enterprises were waiting for confi rmation of a sustained recovery in fi nal demand before stepping up their gross fi xed capital formation any more vigorously, as their balance sheet position and the investment fi nancing conditions were not generally such as to hinder a recovery. In particular, there was a

46

chapter. On the one hand, although unit selling prices fell slightly on the export markets, they increased overall by 0.3 p.c., having dropped by 0.2 p.c. in 2002. Also, com-panies cut their costs per unit of sales by 0.4 p.c., thanks to the lower import prices and the modest increase in unit costs of domestic origin. The latter was due mainly to the movement in unit labour costs, as – after rising sharply for two years – they contracted slightly, companies having consolidated the increase in labour productivity while pay increases were only moderate under the agreements which had been concluded.

Final consumption expenditure of general government grew by 2.3 p.c. in real terms in 2003, a rise in line with the average of the past few years but higher than the fi gure recorded in 2002, which was 1.9 p.c. The increase in expenditure on health care, which had been held down in 2002, accelerated sharply to the region of 5 p.c., while in purchases of goods and services, where growth had been particularly strong in 2002, the pace slowed. Civil service pay and pensions increased at a rate close to that for the previous year. The amount of public investment was infl uenced for the third consecu-tive year by the sale of buildings. Without those sales, public investment was up by 0.9 p.c. after declining for two years.

76

78

80

82

84

86

1995

1997

1999

2001

2003

3.0

2.5

2.0

1.5

CHART 34 CAPITAL STOCK OF ENTERPRISES


Sources : NAI, NBB.(1) After deduction of depreciation.

Net capital stock (1) (percentage changes compared to the corresponding quarter of the previous year, constant prices)

Capacity utilisation rate in manufacturing industry (percentage) (right-hand scale)

Average 1995-2003

(left-hand scale)

e

TABLE 17 DETERMINANTS OF THE GROSS OPERATING SURPLUS OF COMPANIES


Sources : NAI, NBB.(1) Including change in stocks.(2) Apart from compensation of employees, this item covers indirect taxes net of subsidies and gross mixed income of households.

1999 2000 2001 2002 2003 e

Gross operating margin per unit of sales (1) . . . . . . . . . . . . . . . . –0.3 1.7 –3.8 –2.7 6.4

Unit selling price (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 6.3 1.5 –0.2 0.3

On the domestic market (1) . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 2.9 1.5 0.6 1.2

Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 9.6 1.5 –0.9 –0.4

Costs per unit of sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 6.9 2.2 0.1 –0.4

Imported goods and services . . . . . . . . . . . . . . . . . . . . . . . 0.7 12.0 1.5 –1.7 –1.3

Cost of domestic origin per unit of output (1) (2) . . . . . . . . . 1.7 0.3 3.2 2.4 0.5

of which : Unit labour costs . . . . . . . . . . . . . . . . . . . . . . 2.1 0.6 5.7 2.8 0.0

Final sales at constant prices . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 6.5 0.8 0.8 2.2

On the domestic market (1) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 4.4 0.3 0.6 2.8

Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 8.4 1.3 1.0 1.6

Gross operating surplus of companies . . . . . . . . . . . . . . . . . . . 3.6 8.2 –3.1 –1.9 8.7

47

LABOUR MARKET AND LABOUR COSTS

4.1 Labour market

The fall in national employment observed since the end of 2001 persisted in 2003, but slackened towards the end of the year. Overall, the number of persons in work, down by 13,000 units in net terms in 2002, declined by a further 15,000 units on average during the year under review. As a result, the harmonised employment rate dropped by 0.4 percentage point to 59.5 p.c., a level comparable to the 1999 fi gure.

4. Labour market and labour costs

Up to mid 2003, the employment profi le was very similar to that seen after the cyclical trough at the beginning of 1993. In both cases, the preceding growth slowdown was relatively marked and protracted, extending over four quarters. Moreover, the initial recovery in both cases was less vigorous than those following the 1996, and particu-larly the 1998 trough. However, in contrast to the 1993 cycle, employment continued to fall in the seventh and eighth quarters following the cyclical trough, i.e. in the second half of the year under review. This less favourable

TABLE 18 DOMESTIC EMPLOYMENT

(Annual averages)

Sources : NAI, NBB.(1) Overtime worked by full-time employees is not included in these figures, which are also not adjusted for temporary lay-offs.(2) Calendar adjusted data.

1999 2000 2001 2002 2003 e

Domestic employment

Number, thousands of persons . . . . . . . . . . . . . . . . . . . . . . . 4,011 4,088 4,148 4,136 4,121

Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 1.9 1.5 –0.3 –0.4

of which :

Employees

Persons in work

Number, thousands of persons . . . . . . . . . . . . . . . . . . . . . 3,319 3,400 3,466 3,457 3,444

Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 2.5 1.9 –0.3 –0.4

Volume of work (1) (2)

Number, millions of hours . . . . . . . . . . . . . . . . . . . . . . . . . 5,170 5,325 5,407 5,378 5,335

Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 3.0 1.5 –0.6 –0.8

p.m. Average working hours (2)

Number, hours per person . . . . . . . . . . . . . . . . . . . . . . 1,558 1,566 1,560 1,556 1,549

Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.5 –0.4 –0.3 –0.4

48

movement was due to the wavering of the growth recovery at the end of 2002 and the relatively hesitant economic climate. Looking at the four recovery phases recorded since the beginning of the 1990s, the development, since the fourth quarter of 2001, of both employment and activity has been the most unfavourable overall.

The job losses followed a period characterised by uncer-tainty about the recovery of activity, during which fi rms fi rst used their internal scope for fl exibility. Firms initially coped with the slackening of activity by making less use of agency workers, increasing the number of days of tem-porary lay-offs and adjusting the total number of hours worked by other workers. These factors explain why employment responds to changes in GDP more quickly, in principle, in terms of hours worked than in numbers of persons in work.

Since the autumn of 2003, it has been possible to analyse movements in the volume of work on the basis of offi cial statistics, as the NAI has, for the fi rst time, published annual estimates of the volume of work, in number of hours worked in the Belgian economy, for the period 1995-2002. However, owing to the absence of suffi ciently accurate data, the estimates do not include the volume of work by self-employed persons, overtime worked by full-time employees and the incidence of temporary lay-offs. Since those factors are highly sensitive to fl uctuations in activity, the published data are probably less infl uenced by the eco-nomic cycle than the actual number of hours worked.

According to this source, the volume of work increased year by year between 1995 and 2001, before falling by 0.6 p.c. in 2002. According to the Bank’s estimates, this move-ment was a little more marked in 2003, when the volume was down by 0.8 p.c. The number of hours worked thus declined by more than the number of employees, imply-ing a 0.4 p.c. reduction in working hours per employee, comparable to the fi gure for the two preceding years when economic activity was similarly weak. Apart from this cyclical factor, average working hours are infl uenced by a downward trend, owing to the structural increase in the proportion of part-time working and the reduction in contractually agreed working hours, particularly following the general introduction of a 38 hour working week.

The growth of the population of working age and the rise in the activity rate expanded the labour supply by around 31,000 people in the year under review. In part, this increase refl ects the inclusion in the labour force fi gures of newly unemployed persons aged 50 to 56 years who, as explained below, are again regarded as seeking work.

95

100

105

110

95

100

105

110

95

100

105

110

95

100

105

110

95

100

105

110

95

100

105

110

t –4

t –3

t –2 t –1

t +1

t +2

t +3

t +4

t +5

t +6

t +7

t +8t 0

t –4

t –3

t –2 t –1

t +1

t +2

t +3

t +4

t +5

t +6

t +7

t +8t 0

t –4

t –3

t –2 t –1

t +1

t +2

t +3

t +4

t +5

t +6

t +7

t +8t 0

CHART 35 EMPLOYMENT AND ACTIVITY

(Quarterly data, adjusted for seasonal and calendar effects, indices low point of GDP t0 = 100)

Sources : NAI, NBB.(1) Number of persons in work.(2) Number of hours worked; annual data are available from 1995. Overtime work by

full-time employees is not included in these figures, which are also not adjusted for temporary lay-offs.

(3) Estimates for 2003.

GDP

e

e

TOTAL DOMESTIC EMPLOYMENT (1)

VOLUME OF WORK OF EMPLOYEES (2) (3)

t0 : 1st quarter 1993

t0 : 1st quarter 1996

t0 : 4th quarter 1998

t0 : 4th quarter 2001

49


In a depressed labour market where employment was falling, the number of job seekers increased by 47,000, the strongest rise since 1993, pushing the harmo-nised unemployment rate up to 8 p.c. The number of vacancies continued to decline, overall, in 2003, refl ect-ing the unwillingness of employers to commit them-selves in an uncertain economic climate. However, the trough was already reached by the end of 2002, so that the decrease was less severe than in 2001 and 2002, auguring a gradual improvement in the labour market situation.

From the third quarter of 2001, the number of wholly unemployed receiving benefi ts had begun to rise. However, the number out of work for a short period, i.e. those unemployed for less than a year, had already been rising since the beginning of that year. The number of long-term unemployed, i.e. those out of work for a year or more, only began to increase during 2002, when the rise in the number out of work for a short period had already passed its peak. The rise in the number of short-term unemployed was relatively steady during 2002, but then decelerated sharply from the begin-ning of 2003, giving way to a fall in the third quarter, which could be evidence of a gradual improvement in the labour market situation. The rise in the number of unemployed persons during the year under review was therefore refl ected mainly in the increase in long-term unemployment.

This development is due partly to the entry into effect in July 2002 of the measure increasing from 50 to 56 years the minimum age at which one can claim the status of “wholly unemployed, receiving benefi ts and not seeking

TABLE 19 SUPPLY OF AND DEMAND FOR LABOUR

(Annual averages; changes in thousands of units compared to the previous year, unless otherwise stated)

Sources : EC; FOREM; FPS Employment, Labour and Social Consultation; NAI; NEMOI; NSI; ORBEM;VDAB; NBB.(1) Percentage of the population of working age.(2) The movement in the employment and activity rates in Belgium is slightly biased because, since 2001, persons taking a career break of more than three months are no longer

included in the labour force figure. The impact of this methodological adjustment on the overall Belgian employment rate was estimated at around 0.4 percentage point on the basis of the 2000 figures.

(3) Percentage of the labour force.(4) Only vacancies recorded by the regional employment services.

1999 2000 2001 2002 2003 e

Population of working age . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6 22 31 22

Labour force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 45 56 9 31

p.m. Harmonised activity rate (1) (2) . . . . . . . . . . . . . . . . . . . . . . . 64.9 65.1 64.2 64.8 65.0

National employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 78 60 –13 –15

p.m. Harmonised employment rate (1) (2) . . . . . . . . . . . . . . 59.3 60.5 59.9 59.9 59.5

Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –33 –33 –5 22 47

p.m. Harmonised unemployment rate (3) . . . . . . . . . . . . . . 8.6 6.9 6.7 7.3 8.0

Vacancies (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9 –7 –5 –1

–10000

–5000

0

5000

10000

15000

1999 2000 2001 2002 2003–10000

–5000

0

5000

10000

15000

CHART 36 WHOLLY UNEMPLOYED JOB-SEEKERS RECEIVING BENEFITS, BY DURATION OF UNEMPLOYMENT

(Seasonally adjusted data, change in number of persons compared to the previous quarter)

Source : NEMO.

Total

for less than one year

for more than one year

of which :

50

work”. From 1 July 2003 that was raised to 57 years, and will be set at 58 years from July 2004. Thus, new unemployed persons in this age group must in future keep themselves available for the labour market. This measure, aimed at increasing the employment rate of older persons, has so far had hardly any infl uence on their situation in the labour market. Given the weakness of economic activity, the number of jobs available has in fact been very small, so that only a few of these people have actually found a job.

Also, among those in work, the position of older people becomes more precarious during a slowdown. When businesses are restructured, employers – generally in agreement with the workers’ representatives – often resolve problems of surplus staff by shedding older workers, particularly via the early retirement system. Since the beginning of 2003, the numbers taking full-time early retirement have in fact risen slightly, reversing a down-ward trend that had continued for several years.

These overall movements affected the different regions of the country in varying degrees, as the structural situations on their labour markets are highly divergent. The three regions

100000

110000

120000

130000

140000

150000

10000

20000

30000

40000

50000

60000

1999 2000 2001 2002 2003

CHART 37 EARLY RETIREMENT AND OLDER UNEMPLOYED PERSONS

(Number of beneficiaries)

Source : NEMO.

(right-hand scale)

Full-time early retirement, age 50 or over (left-hand scale)

Seeking work

Not seeking work

Wholly unemployed receiving benefits, aged 50-54

0 4 8 10 12 14

1.0

0.8

0.6

0.4

0.2

0.0

1.0

0.8

0.6

0.4

0.2

0.062

CHART 38 UNEMPLOYMENT AND VACANCIES IN 2003

(Percentage of the population of working age)

Sources : FOREM, NEMO, ORBEM, VDAB.(1) In the absence of regional data on the labour force, the unemployment rates shown in this chart are expressed as a percentage of the population of working age and not, as is

normal practice, as a percentage of the labour force.(2) Only vacancies recorded by the public regional employment services. The comparability of the figures may be affected by the fact that the basic data are not produced in the

same way in the three regions, and double counting cannot be ruled out since jobs may be offered in more than one province or region. Furthermore, in the case of Flanders and Wallonia, some of the vacancies cannot be divided between the various provinces so that the regional rate does not correspond to the average of the ratios calculated for the provinces.

Limburg

Antwerp

LuxembourgNamur

LiègeHainaut

West Flanders

East Flanders

Flemish Brabant

Walloon BrabantBRUSSELS

BELGIUM

FLANDERS

WALLONIA

Unemployment (1)

Vac

anci

es (2

)

51


in fact feature signifi cant differences in employment : in 2002 the harmonised employment rate was 63.5 p.c. of the population of working age in Flanders, against 54.8 p.c. in Wallonia and 54.5 p.c. in Brussels. The admin-istrative data on unemployment and vacancies also reveal marked disparities : as a percentage of the population of working age, the unemployment rate in 2003 was highest in Brussels, which had the smallest number of vacancies of the three regions. The situation was slightly less adverse in Wallonia and considerably better in Flanders, where unem-ployment in relative terms was less than half the fi gure for the other two regions, and the number of vacancies was more than twice as high in relative terms. These fi ndings hold true for the provinces as well. While the Flemish prov-inces differed from one another mainly in terms of the rela-tive number of vacancies, the main variations between the Walloon provinces concerned the unemployment rate, as the relative number of vacancies was more or less equally low in each province.

There is nothing surprising about the inverse relationship recorded between vacancies and unemployment, since a rise in the number of vacancies generally leads to a fall in unemployment and, conversely, a relatively small number of unfi lled vacancies leaves little scope for reducing the number of job-seekers. The coexistence of totally different situations in adjacent regions, e.g. the provinces of West Flanders and Hainaut, or Flemish Brabant, Walloon Brabant and Brussels, illustrates the low geographical mobility on the Belgian labour market. A better exchange of information on available jobs between the regional employment services could help to improve that situation. Where Flanders and Wallonia are concerned, job-seekers’ mobility is hampered to some extent by the language barriers, but relatively large differences are also apparent within the regions.

Box 4 – Defi nition of the main labour market indicators

The population of working age comprises persons aged 15 to 64 and measures the total potential labour supply. It can be divided into two main groups :

– the non-active population comprises persons who are not working and are not seeking work;– conversely, the labour force is composed of persons participating in the labour market. This population forms

the actual labour supply, and can in turn be divided into two groups :– persons in work, whether employees or self-employed, are grouped together under the generic heading :

population in employment;– the non-working or unemployed labour force comprises persons out of work who are seeking

employment.

The activity rate is the ratio between the labour force and the population of working age, and provides an idea of the relative number of persons participating or wishing to participate in the labour market.

The employment rate is the ratio between the population in employment and the population of working age, and indicates the percentage of the total potential labour supply which is actually working.

The unemployment rate is the ratio between the unemployed population and the labour force. It indicates the percentage of unemployed in the group of persons wishing to participate in the labour market.

There are two main sources of information for measuring these variables. First, there are administrative data, in this case the NAI’s national accounts for employment, the NEMO data for the number of unemployed, and the NSI for the demographic statistics. Although in principle the data are exhaustive, they are not comparable with those of other countries. For greater international comparability, reference is made to the fi gures produced by the labour force surveys harmonised at EU level, which are the second important source of data on the labour market.

In this report, the national administrative data are used to evaluate the level of, and changes in, employment and unemployment in numbers of persons. In contrast, the activity rate, employment rate and unemployment rate refer to the survey data. They are designated as “harmonised” rates in order to make that clear.

52

The size of the disparities in unemployment rates in Belgium can be placed in perspective by viewing them in relation to European levels. A domestic disparity indicator calculated for eleven EU Member States places Belgium third after Italy and Germany, countries with very marked regional differences. While it certainly does not provide an unequivocal explanation of unemployment – countries such as France and Greece have low disparities but high unemployment rates – this indicator refl ects the mismatch between the location of the labour and the geographical distribution of the jobs. In that respect, if more job- seekers could move to the regions with a high propor-tion of unfi lled vacancies and, should the occasion arise, if fi rms could relocate to places with reserves of labour, that would help to improve the match beween the labour supply and demand, thereby reducing both the overall volume of unemployment and the shortages still persist-ing in certain segments of the labour market. The fact that Belgium has a signifi cantly higher internal disparity than the fi gure prevailing in most EU Member States indi-cates that its obstacles to mobility are relatively greater.

Worker mobility is specifi cally one of the policies put forward by the European employment strategy, the fi rst version dating from the end of 1997. At the time, the strategy centred mainly on reducing unemployment. On

the basis of the harmonised data published by the EC, for which the reference period is the second quarter of each year, the unemployment rate expressed as a percentage of the labour force came to 9 p.c. at that time in Belgium, or around 2 percentage points below the EU average. Since then, the rate has fallen signifi cantly, dropping to 6.9 p.c. in 2002, the last year for which internationally comparable data are available. However, the number of job-seekers fell relatively more steeply in the EU where, in 2002, the unemployment rate was only 0.8 percentage points higher than in Belgium.

In Belgium, the harmonised employment rate increased between 1997 and 2002 by around 3 percentage points, thus reaching 59.7 p.c. in the second quarter of 2002. However, as in the case of the unemployment rate, Belgium’s relative position deteriorated : in 1997, owing mainly to a shortage of jobs for women, the young, and older or unskilled workers, the overall employment rate in Belgium was 3.3 percentage points below the European average, but by 2002 the gap had in fact widened

0

20

40

60

0

3

6

9

12

15

CHART 39 INTERNAL DISPARITY AND UNEMPLOYMENT RATES IN BELGIUM AND THE OTHER EU COUNTRIES (1)

(Averages 1999-2002)

Sources : EC, NBB.(1) Variances in the ratio between the regional harmonised unemployment rates at

NUTS 2 level (for Belgium, this level corresponds to the provinces) and the overall unemployment rate, weighted by the share of the labour force of each region in the total labour force. For Denmark, Finland, Luxembourg and Portugal, this indicator cannot be calculated as there are no data at NUTS 2 level for those countries.

Internal disparity (left-hand scale)

Harmonised unemployment rate (right-hand scale)

IT DE ES AT

GB SE FR NL IE GR

BE

–16

–12

–8

–4

0

4

–16

–12

–8

–4

0

4

CHART 40 HARMONISED EMPLOYMENT RATES IN BELGIUM AND THE EU (1) (2)

(Difference in percentage points between employment rates, expressed as a percentage of the corresponding population of working age, in Belgium and the EU)

Source : EC.(1) The data on the labour force survey at EU level are available only for the second

quarter of each year, so that the employment rates used in this chart relate only to that period.

(2) The movement in employment rates in Belgium is slightly distorted because, since 2001, persons taking a career break of more than three months are no longer included in the labour force figures. The impact of this methodological adjustment on the overall Belgian employment rate was estimated at around 0.4 percentage points on the basis of the 2000 figures.

Tota

l

Men

Wom

en

15-2

4 ye

ars

25-5

4 ye

ars

55-6

4 ye

ars

Low

ski

lled

Med

ium

ski

lled

Hig

h sk

illed

1997

2002

53


to 4.5 percentage points. The employment rate gap between Belgium and the EU widened for both sexes, all age groups and all standards of qualifi cations, with the notable exception of persons aged 55 or over and the low skilled. For these two categories there was nevertheless still a sizeable discrepancy of 14 and 8.6 percentage points respectively. Analysis by gender shows that the position of men on the labour market worsened more sharply than that of women, one factor being the variations in sectoral employment trends during that period. Finally, Belgium lost its lead over the EU in terms of employment rates for the 25-54 age group and the highly skilled.

Analysis of the labour market’s contribution to economic activity during the period covered by the European employment strategy, namely from 1998 to 2003, reveals that it was mainly the rise in productivity per hour worked and in the employment rate that supported GDP growth, adding 1.1 and 0.8 percentage point respectively. Around 0.2 percentage point of the growth also came from the increase in the population of working age, but the impact of that factor was counterbalanced by a structural downward trend in working hours. However, the con-tribution of productivity per hour worked was markedly lower than in the past, since it had totalled 2 percentage points during the 1986-1997 period; at that time the contribution of the employment rate – at 0.5 percentage point – was lower. The varying movement in these two factors illustrates the increasing job content of economic growth in recent years.

The predicted ageing of the population implies that, in a few years’ time, the number of persons of working age will fall and that will therefore be a factor curbing the growth of the Belgian economy. That growth will thus depend to a crucial degree on labour productivity

and the employment rate. One of the paradoxes of the efforts made to boost the employment rate is that they have slowed the improvement in apparent productivity, since they target primarily persons with low skills, who are therefore less productive, placing them in jobs with less scope for productivity gains, such as in the service sector. However, in the long term the introduction of new technologies and the improvement in the average standard of education of the population can be expected to generate a structural rise in productivity gains, which will reinforce the impact of the rising employment rate on economic growth.

The recent, relatively less favourable developments on the Belgian labour market compared to the average for the EU Member States, and the impending ageing of the population with the resulting problem of fi nancing social security, prompted the federal government to organise a National Employment Conference in September 2003, also attended by representatives of employers and unions and the governments of the federated entities. In their conclusions, the participants stressed the urgent need to close the gap which has opened in relation to the EU. To that end, they undertook to accord absolute priority to employment and decided on a set of measures relating to the areas for which they are responsible; those measures are a fi rst step along the road. There will be further devel-opments relating to other projects, such as the priority for the extension of working life.

Strong and sustained growth is essential to support job creation. In the context of the knowledge society, Employment Conference participants thus agreed to devote a greater effort to scientifi c research, education and training.

As detailed in the section of this chapter on labour costs, further reductions in social security contributions will be implemented from 2004 onwards, with the aim of creating 23,000 new jobs. The service voucher system has been adapted in order to create an extra 25,000 jobs in the home care sector. The federal government and the federated entities will also endeavour to create another 12,000 jobs in the social economy, jobs intended prima-rily for integrating persons from target groups. These measures meet an important need in assisting people for whom the market does not necessarily offer a satisfactory solution. Parallel systems have thus been created, confi n-ing certain workers to economically precarious and legally uncertain situations, which the said measures are also intended to remedy. It is a question of not only convert-ing undeclared work into regular employment, but also creating new jobs.

TABLE 20 LABOUR MARKET AND GDP GROWTH

(Average annual percentage change)

Sources : NAI, NSI, NBB.(1) Calendar adjusted data.

1986-1997 1998-2003 e

GDP (1) . . . . . . . . . . . . . . . . . . . . . . 2.3 1.9

of which :Productivity per hour

worked (1) . . . . . . . . . . . . . . 2.0 1.1

Hours worked per worker (1) . . –0.2 –0.2

Employment rate . . . . . . . . . . 0.5 0.8

Population of working age . . 0.1 0.2

54

Finally, the Conference participants concluded that it was necessary to combat existing discrimination on the labour market in order to increase the participation of under- represented groups, including immigrants. Efforts will also be made to encourage inter-regional mobility and to improve individual guidance and follow-up for job-seekers, whose availability must be monitored more effi ciently. To help fi nd new jobs for workers affected by restructuring, there will be fi nancial incentives to encourage the creation of employment units in which management and unions will both play a role.

Beyond the Employment Conference, a number of measures concerning the labour market took effect during the year under review. To discourage older people from retiring prematurely, new pension plans drawn up from 15 November 2003 may no longer provide for workers to be paid supplementary pensions – often granted as sever-ance pay when fi rms restructure or close down – before their sixtieth birthday. However, this new minimum age will not apply until 1 January 2010 in the case of plans arranged before 15 November 2003.

In order to ease the administrative burden for busi-nesses, since 1 January 2003 the NSSO has permitted employers to submit their declarations electronically. Under the Dimona project, this applies to the statement of employees entering and leaving their employment, thereby relaxing or abolishing various requirements con-cerning the social documents which must be kept. From the year under review, the quarterly NSSO return can also be submitted electronically and has become multi-functional (Dmfa), in that the data which it contains on wages and working hours are also intended for use by other social security authorities, e.g. for the calculation of holiday pay and pensions.

4.2 Labour costs

The downturn in economic activity which began in 2000, with the ensuing deterioration in the labour market situ-ation, eventually had an impact on wage agreements. In December 2002, the social partners took account of this rather weak environment when concluding the biennial central agreement on pay increases. As an indicative norm for 2003-2004, they proposed a growth margin of 5.4 p.c. for labour costs per hour worked in the private sector. This fi gure fell within the 5.1 to 6 p.c. range which the Central Council for the Economy (CCE) had calcu-lated on the basis of the movement in the share of labour income in value added and the expected rise in labour costs in the three main neighbouring countries, with due allowance for the associated uncertainty.

Since the joint committee negotiations take place in the year following the conclusion of the central agreement, the average scale of the real agreed pay increases is gen-erally smaller during the fi rst of the two years to which it relates. In view of the bleak economic situation, the social partners also called on the negotiators in the joint committees to delay the major part of the pay rises until 2004. They complied : leaving aside indexation, the sec-toral agreed increases averaged 0.4 p.c. in 2003, against 0.8 and 1.5 p.c. in 2001 and 2002 respectively. Moreover, the automatic indexation had a much less signifi cant impact than in the previous year : 1.5 p.c. against 2.3 p.c. The fall in infl ation measured on the basis of the ‘health’ index of consumer prices started in 2002 but was not fully refl ected in wage indexation until 2003, since the systems which the various joint committees use to link wages to prices entail some delay between any rise or fall in infl a-tion and its impact on wages.

TABLE 21 MAIN CALCULATED CONCLUSIONS OF THE EMPLOYMENT CONFERENCE

Source : FPS Employment, Labour and Social Consultation.

Themes Objectives Timing

Scientific research . . . . . . . . 3 p.c. of GDP 2010

Training

Businesses

Training budget . . . . . . 1.9 p.c. of the wage bill 2004

Participation . . . . . . . . . 50 p.c. of workers; an extra 60,000 workers each year 2010

Job seekers

Individual guidance . . . all job seekers 2006

Subsidised jobs

Service vouchers . . . . . . . 25,000 jobs 2005

Social economy . . . . . . . . 12,000 jobs 2007

Reductions in social security contributions

Non-profit sector . . . . . . . 5,000 jobs 2005

Private market sector . . . . 18,000 jobs 2007

55


In nominal terms, collectively agreed wages in the private sector therefore rose by 1.8 p.c. against 3.3 and 3.8 p.c. in the two preceding years. This adjustment to pay condi-tions in line with the economic situation in general and the labour market situation in particular was largely made possible by the coordinating role performed by the wage norm and the central consultation. National coordination of the wage-fi xing process exists in one form or another in various EU countries. This coordination does not preclude differential pay increases. In Belgium, if the joint com-mittees are arranged according to the branch of activity to which they are attached, it is evident that the agreed increases granted certainly differ both in scale and in the period over which they are spread. These divergences are due to the size and timing of the real increases granted, and to the indexation mechanism used.

Furthermore, it is becoming increasingly common for joint committees to explicitly leave fi rms the scope to decide on increases appropriate to their specifi c situa-tion. Internationally, it is also apparent that negotiations within fi rms have gained in importance in the majority of European countries, as this partial decentralisation of wage fi xing enables them to adjust pay in line with local conditions. Moreover, analysis of the social balance sheets also shows a wide dispersion in the rise in per-sonnel costs in Belgium. During the period 2001-2002, some 30 p.c. of fi rms in fact recorded a rise in their hourly staff costs which was less than half the aver-age increase. On the other hand, the increase in these costs was more than one and a half times that average in roughly the equivalent number of companies. Similar discrepancies are also seen between fi rms in the same branch of activity.

These fi gures illustrate the potential signifi cance of pay increases granted by individual fi rms. However, unlike the agreed increases fi xed at sectoral level, they are not specifi cally recorded and are therefore included in the wage drift. Nonetheless, the differences relating to pay increases for persons in work are not the only factors infl uencing this variable, as the wage drift is also affected by changes in the structure of employment, such as age, standard of education and classifi cation of the personnel. Therefore, personnel movements such as the replacement of certain workers by younger or better trained staff and the use of certain recruitment plans according entitle-ment to employment promotion measures may affect the movement in labour costs. The effect of these factors is estimated at an average of 0.5 p.c. in the year under review. Gross hourly wages thus increased by a total of 2.3 p.c. in 2003, just half the rate of increase recorded in 2002.

The employers’ social security contributions had a slightly moderating effect on the rise in the labour costs of fi rms during the year under review, curbing that rise by 0.2 p.c. Labour costs per hour worked in the private sector thus increased by 2.1 p.c. in 2003, after rising steeply by 3.9 and 5 p.c. in 2001 and 2002. The downward infl u-ence of employers’ contributions was due to a new adjustment of the structural reductions in social security contributions for white collar workers to the level of those for blue collar workers. These developments are in line with a downward trend in the percentage of hourly labour costs represented by contributions paid to public authorities, a trend which was particularly marked in 1999 and 2000. The contribution fi gure was thus reduced to a maximum of 19.5 p.c. in 1998 and 18.4 p.c. in 2003.

There was no major change in the other social security contributions paid by employers in 2003. Contributions paid to the private sector, essentially pension fund and group insurance payments, tended to edge upwards during 1996-2003, as the use of non-statutory forms of pensions gradually became a fully-fl edged element of the pay policy for both individual fi rms and whole sectors. The law of 28 April 2003 on supplementary pensions encour-ages the creation of sectoral funds, thus endorsing a situ-ation which has existed for a long time, e.g. in the build-ing industry, or only recently, as in the case of certain joint committees in the metallurgy industry. The movement

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

CHART 41 COLLECTIVELY AGREED WAGES IN 2003 (1)

(Percentage changes compared to the previous quarter)

Source : FPS Employment, Labour and Social Consultation.(1) Pay increases for manual and non-manual workers, defined by joint committees,

excluding increases granted by individual firms.

Financial services

Hotel and catering sector

Building industry

Industry

Property services and business services

Transport and communications

Trade and repairs

Production and distribution of electricity, gas and water

1st quarter

2nd quarter

3rd quarter

4th quarter

56

in contributions paid into these pension funds or group insurance schemes depends partly on the yield produced by the investment instruments which they use; that may explain why these contributions tended to exert a mod-erating effect on the movement in labour costs in 1999 and 2000. On the other hand, imputed employers’ con-tributions were more stable throughout the period. The movement in these contributions is therefore still linked to the economic situation, since they consist mainly of redundancy payments, the increase in which contributes towards rising labour costs in a period of weak economic growth characterised by restructurings or even business closures, and larger numbers of job losses. Overall, the total share of employers’ contributions in private sector labour costs dropped from 25.6 p.c. in 1998 to 24.8 p.c. in 2003.

To measure the burden of levies on earned incomes, it is not suffi cient to examine employers’ contributions, as the tax wedge also includes employees’ social security con-tributions and taxes on earned income. Although the tax wedge increases the cost of labour as a factor of produc-tion, it is nevertheless necessary to remember that it also refl ects the level of social protection and other public pro-vision fi nanced by this means. International comparison reveals that, in Belgium, the tax wedge is still among the highest in Europe, despite measures taken in recent years to limit compulsory levies. According to the OECD fi gures for 2002, the total burden of fi scal and parafi scal levies on labour for an individual receiving an average income

TABLE 22 LABOUR COSTS IN THE PRIVATE SECTOR


Sources : FPS Employment, Labour and Social Consultation; NAI; NBB.(1) Wage increases fixed by joint committees.(2) Increases granted by enterprises over and above those under central and sectoral collective agreements, wage drift resulting from changes in the structure of employment

(e.g. as a result of job creation programmes) and errors and omissions.(3) Contribution to the rise in labour costs.(4) Payments made to private agencies, e.g. pension funds and group insurance, and imputed employers’ contributions (including redundancy pay).

1997 1998 1999 2000 2001 2002 2003 e

Gross wages per hour worked . . . . . . . . . . . . . . . . 2.6 1.0 3.8 2.5 3.7 4.8 2.3

Collectively agreed wages (1) . . . . . . . . . . . . . . . . 1.7 1.9 1.7 2.8 3.3 3.8 1.8

Real agreed adjustments . . . . . . . . . . . . . . . . . 0.2 0.7 0.5 1.3 0.8 1.5 0.4

Indexations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 1.2 1.1 1.5 2.5 2.3 1.5

Wage drift (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 –0.9 2.1 –0.3 0.3 1.0 0.5

Employers’ social security contributions (3) . . . . . . . . 0.0 0.4 –0.5 –0.8 0.2 0.2 –0.2

Contributions paid to public authorities . . . . . . . 0.1 0.3 –0.5 –0.7 –0.2 0.1 –0.2

Other contributions (4) . . . . . . . . . . . . . . . . . . . . . 0.0 0.1 –0.1 –0.2 0.5 0.2 0.0

Labour costs per hour worked . . . . . . . . . . . . . . . . 2.6 1.4 3.2 1.6 3.9 5.0 2.1

0,6

0,4

0,2

0,0

–0,2

–0,4

–0,6

–0,8

–1,0

25,8

25,6

25,4

25,2

25,0

24,8

24,6

24,4

24,21996 1997 1998 1999 2000 2001 2002 2003

CHART 42 EMPLOYERS’ CONTRIBUTIONS IN THE PRIVATE SECTOR

(Percentage of labour costs)

Sources : NAI, NBB.

Imputed

e

Contributions

Paid to other sectors

Total employers’ contributions (left-hand scale)

(changes since 1996, percentage points of labour costs) (right-hand scale)

Paid to social security

57


came to more than 55 p.c. of labour costs in Belgium, the highest rate in the whole of the EU. Nonetheless, the tax wedge has declined since 1996, but a similar reduction has occurred in all European countries except Germany and Austria, and has often been more marked than in Belgium. In the case of workers on low wages, defi ned by the OECD as representing 67 p.c. of the average wages of a manual worker in the country in question, the tax wedge is larger in Belgium than in any other EU country. Finland, which has a highly progressive tax system, is the only country with a greater total burden of fi scal and parafi scal levies on high wages, defi ned as representing 167 p.c. of the average wage.

In the context of the employment policy, the government and the social partners pay considerable attention to the problem of the fi scal and parafi scal burden on wages. Thus, at the Employment Conference in September 2003 it was decided to introduce a package of contribution cuts, which will take effect during 2004.

Initially budgeted at 400 million euro, once fully opera-tional these cuts will represent 840 million euro or around 0.8 p.c. of the private sector wage bill. In that connec-tion, general reductions in employers’ contributions are planned in the form of larger structural reductions in employers’ social security contributions, but the main focus will be on reductions targeting workers on low

wages, i.e. those whose gross monthly pay is less than 1,956.60 euro, and the costs relating to workers on high wages (for the part of their pay above 12,000 euro gross per quarter). Furthermore, part of the above reductions will be devoted to increasing the subsidies, totalling 115 million euro in a full year, in favour of the non-profi t sector under the Social Maribel programme. In addition, the creation of part-time jobs and jobs for the young, the long-term unemployed and those in receipt of the living allowance will be encouraged by various parafi scal measures, while there will also be fi nancial support for outplacement in the case of restructuring.

As regards employees, low wage earners have also been granted bigger reductions in personal contributions. The progressive implementation of the personal income tax reform is also helping to moderate the tax burden on earned incomes and thus to reduce the tax wedge. In 2003, the main measures adopted via this reform were the abolition of the highest marginal rate of tax on incomes, the raising of the ceilings for the middle income groups, the increase in the tax allowances for professional expenses and the implementation of the tax credit for low-wage earners.

All these measures to reduce the tax wedge were aimed mainly at stimulating employment in Belgium. However, as is evident from the econometric simulation results published in the Bank’s Working Paper no 36 in

BE

DE

SE

IT

DK

FI

AT

FR

NL

GR

ES

PT

GB

IE

10 20 30 40 50 60 700

BE

DE

FR

SE

IT

FI

AT

DK

ES

NL

GR

PT

GB

IE

10 20 30 40 50 60 700

FI

BE

DE

SE

DK

FR

AT

IT

ES

NL

GR

PT

IE

GB

10 20 30 40 50 60 700

20021996

CHART 43 FISCAL AND PARAFISCAL BURDEN ON LABOUR (1)

(Percentage of labour costs)

Source : OECD.(1) Employer’s and employee’s contributions and taxes on income of an unmarried employee with no children.(2) 67 p.c. of the average gross wage of a manual worker.(3) 31,173 euros in 2002 for a manual worker in Belgium.(4) 167 p.c. of the average gross wage of a manual worker.

LOW WAGES (2) HIGH WAGES (4)AVERAGE WAGES (3)

58

March 2003, that aim will not be met unless the reduc-tions in fi scal charges are actually translated into lower labour costs for fi rms, or at least a slower rise in those costs, and therefore do not lead to the granting of additional benefi ts by way of remuneration. The social partners’ commitment to promoting employment, at both central and company level, is obviously crucial here.

The chronological profi le of the apparent productivity of labour, or value added at constant prices per hour worked, depends partly on the profi le of economic activity. Thus, the slackness of the economy caused employment to contract in 2002 and 2003, particularly following corporate restructurings, which led to a rise in apparent labour productivity. This increased by 2.1 p.c. in the private sector in 2003, following a similar rise in 2002. Since this sustained improvement in labour productivity was accompanied by slower growth of hourly labour costs in 2003, unit labour costs remained unchanged, after increasing sharply by 4.8 and 2.9 p.c. in 2001 and 2002. Taking account of the 2 p.c. increase in the defl ator of value added, the slowdown in the growth of the wage component of production costs helped fi rms to restore their operating margins.

Owing to this improvement in the gross operating margin, the share of wages in private sector value added, which had risen in 2001 and 2002, dropped back in 2003, reverting more or less to the level of 1996, the year of entry into force of the law on promoting employment and safeguarding competitiveness. One effect of the stability of that indicator is that the allocation of the benefi ts of economic growth between the factors of production has remained unchanged and the movement in real labour costs has paralleled that in apparent labour productivity. In that regard, in the private sector the average produc-tivity gains during 1997-2003 corresponded to the trend growth in apparent labour productivity, estimated at 1.5 p.c.

While an increase in real wages equivalent to the trend rise in productivity is compatible with price stability, it need not be optimal from the point of view of employment policy. In a period of slack activity, greater moderation can make it possible to avoid excessive job losses and encour-age the rapid resumption of new job creation. During the last cyclical downturn, such moderation was observed, according to the EC, in most other EU countries, whereas in Belgium, by contrast, the real rise in hourly wages out-paced the trend increase in productivity. In more structural terms, a rise in labour costs below the trend increase in

TABLE 23 UNIT LABOUR COSTS IN THE PRIVATE SECTOR


Sources : FPS Employment, Labour and Social Consultation; NAI; NBB.(1) Ratio between value added at constant prices and the hours worked by employees and self-employed workers.

1997 1998 1999 2000 2001 2002 2003 e

Hourly labour costs . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 1.4 3.2 1.6 3.9 5.0 2.1

Apparent labour productivity (1) . . . . . . . . . . . . . . . . 2.7 0.7 1.7 1.7 –0.9 2.1 2.1

Unit labour costs . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.1 0.7 1.6 –0.1 4.8 2.9 0.0

–4

–3

–2

–1

0

1

2

3

4

5

6

–4

–3

–2

–1

0

1

2

3

4

5

6

1997 1998 1999 2000 2001 2002

CHART 44 LABOUR COSTS, DEFLATOR AND LABOUR PRODUCTIVITY IN THE PRIVATE SECTOR


Sources : NAI, NBB.(1) Labour costs plus labour incomes imputed to the self-employed as a ratio of value

added at market prices.

Deflator of value added

Productivity per hour worked

Hourly labour costs

Share of wages in value added (1)

(percentage change compared to 1996)

2003 e

59


productivity could help to make the production process more favourable to employment, and thus permit a rise in the employment rate, which is one of the key political priorities in the EU, and especially in Belgium.

Like the ratio between labour costs and productivity, the relative movement in labour costs in comparison with competitors has a major impact on employment for a small, open economy such as Belgium. That is why the 1996 law on competitiveness stipulates that the wage norm is to be based on the movement in labour costs in the three main neighbouring countries. On the basis of the latest OECD fi gures, it appears that the 1.5 percent-age point excess rise in labour costs in the private sector in Belgium in 2001-2002 was offset in 2003. However, given the relatively slower growth of productivity in Belgium in

–10

–5

0

5

10

15

20

–10

–5

0

5

10

15

20

1996 1997 1998 1999 2000 2001 2002 1996 1997 1998 1999 2000 2001 2002

GRAFIEK 45 LABOUR COSTS IN THE PRIVATE SECTOR IN BELGIUM AND THE EURO AREA

(Percentage points, deviation from the index for Belgium, 1996 = 100)

Sources : EC, OECD, CCE.

Three neighbouring countries

Germany

France

Netherlands

HOURLY LABOUR COSTS UNIT LABOUR COSTS

2003 e 2003 e

euro area

the past few years, compared to the three main neigh-bouring countries, a growth discrepancy of almost 4 per-centage points persisted for unit labour costs at the end of the 1996-2003 period.

Finally, the reference to the average for the three neigh-bouring countries has masked a very uneven picture in recent years : the steep rise in labour costs in the Netherlands is in stark contrast to the wage modera-tion in Germany. Be that as it may, hourly labour costs in Belgium increased at almost the same pace as in the euro area as a whole, while unit labour costs increased somewhat faster. In that sense, the movement in labour costs therefore did not help to close the gap between Belgium and the other European countries where employment is concerned.

61

PRICES

5. Prices

5.1 Infl ation in Belgium

Measured by the harmonised index of consumer prices (HICP), infl ation in Belgium was running at 1.5 p.c. in the year under review, roughly equivalent to the previous year’s level. As in 2002, Belgium therefore recorded one of the lowest infl ation rates in the monetary union, though without showing any sign of defl ation. In both 2002 and 2003, this subdued Infl ation was largely attributable to a series of government decisions concerning mainly the radio and television licence fee and the fi xing of prices on the electricity and gas market. Those measures had a downward impact on infl ation, which was only partly counterbalanced by an increase in indirect taxes. Without these primarily administrative price changes, infl ation would have come to 1.9 p.c. in 2002 and 1.8 p.c. in 2003.

If these primarily administrative price changes also excluded from the underlying trend in infl ation, which disregards the traditionally highly volatile movements in prices of unprocessed food and energy, it emerges that – having fallen during 2002 – this trend hovered around 2 p.c. throughout the year under review. That trend therefore seems relatively persistent, despite the rather slack economic activity and the appreciation of the euro. Infl ation in the euro area showed a similar degree of persistence.

Primarily administrative price changes

Infl ation was in the fi rst instance affected by the aboli-tion of the radio and television licence fee in Flanders and Brussels in 2002, and the licence fee reduction total-ling around 30 p.c. in Wallonia in 2003. For calculating the price index, half of the price reductions resulting from these measures were imputed to April and half to

October in the year in which they were implemented, i.e. the months when the radio and television licence fee should normally be paid.

The impact of these measures on the annual change in the HICP came to a maximum of around 0.5 percentage point in the period from October 2002 to March 2003, their effect falling to around 0.3 percentage point from April 2003 to September 2003 when, in the case of Flanders and Brussels, the only remaining effect cor-responded to the disappearance of the fee payments in October and, in the case of Wallonia, the reduc-tion was applied to the payments made in April. From October 2003, the infl uence of these measures on the annual infl ation rate was just 0.1 percentage point, namely the overall impact of the reduction in Wallonia. Over the whole of the year under review, the measures relating to the television and radio licence fee contributed an average of 0.32 percentage point to the decline in infl ation, against 0.27 percentage point for 2002 as a whole.

Another factor reducing infl ation was the change in the calculation of electricity and gas tariffs, introduced by the Electricity and Gas Control Committee (EGCC) in 2002, at the instigation of the federal government, in order to bring the consumer prices of these products more into line with those in neighbouring countries. This change continued to exert downward pressure on infl ation in 2003, though the effect was partly negated by price increases resulting from a number of levies on electricity and gas consumption. Altogether, these decisions on gas and electricity prices reduced infl ation by around 0.1 per-centage point, as in 2002.

62

The EGCC used to control prices of electricity and gas in the non-liberalised market segments. However, in view of the progressive liberalisation – in Flanders the gas and electricity market has been totally liberalised since 1 July 2003 – the activities and responsibilities of that Committee were taken over, during the year under review, by the Electricity and Gas Regulation Committee (EGRC). Once this market had been opened up, only a small number of consumers – 2.3 p.c. as at 1 December 2003 – have changed supplier in order to take advantage of cheaper rates. Nonetheless, on the same date some 8.7 p.c. of households had obtained from their standard supplier more favourable terms than the basic tariffs. In all, however, the available statistics do not permit an accu-rate estimate of the effect on consumer prices of opening up the residential market to competition in Flanders. That is also why only the regulated consumer price enforced on the still unliberalised market segments is included in the HICP. Since the coverage is therefore still incomplete, it may lead to some overestimation of the movement in prices, especially as, under an agreement with the federal

government, the regulated price represents a temporary maximum price on the liberalised market in Flanders. The levy on electricity consumption introduced by the programme law of 24 December 2002 to compensate for the loss of income suffered by the municipalities following liberalisation had not yet taken effect during the year under review.

In 2003, changes in indirect taxes, in contrast to the other administrative decisions described above, exerted upward pressure on infl ation, though the effect was only around 0.1 percentage point. Apart from increasing indirect taxes on tobacco at the beginning of the year, the federal government implemented a number of changes to indirect taxes on energy from August 2003. In order to meet the Kyoto targets, the energy levy was increased for electricity, fuel for transport equipment and heating oil, while it was reduced for gas which is less harmful to the environment. In addition, a ratchet system of increasing excise duty on petrol was introduced in August. Under this system, half of each price reduction resulting from application of the

TABLE 24 HARMONISED INDEX OF CONSUMER PRICES IN BELGIUM


Sources : EC; FPS for Economy, SMEs, Self-employed and Energy; NBB.(1) Fruit, vegetables, meat and fish.(2) Measured by the HICP excluding unprocessed food and energy.(3) National consumer price index, excluding products considered harmful to health, namely tobacco, alcoholic beverages, petrol and diesel.(4) That is measures relating to the radio and television licence fee, tariff changes in the network industries in which liberalisation is farthest advanced, namely

telecommunications, electricity and gas, and changes to indirect taxes.(5) Excluding the estimated effect, in January and July 2000, of the fact that prices discounted in sales have been taken into account in the HICP since 2000.

Total p.m.Health index (3)

Energy Unprocessedfood (1)

Underlyingtrend in

inflation (2)

Processedfood

Non-energyindustrial

goods

Services

1999 . . . . . . . . . . . . . . . . . . 1.1 2.0 0.0 1.1 0.6 0.8 1.8 0.9

2000 . . . . . . . . . . . . . . . . . . 2.7 16.3 0.2 1.1 1.3 0.0 2.3 1.9

2001 . . . . . . . . . . . . . . . . . . 2.4 1.4 6.9 2.1 2.2 2.0 2.1 2.7

2002 . . . . . . . . . . . . . . . . . . 1.6 –3.6 3.2 2.1 1.5 1.7 2.6 1.8

2003 . . . . . . . . . . . . . . . . . . 1.5 0.2 1.7 1.7 2.8 1.0 1.9 1.5

Excluding primarily administrative price changes (4)

1999 . . . . . . . . . . . . . . . . . . 1.2 1.7 0.0 1.3 0.6 0.8 2.2

2000 (5) . . . . . . . . . . . . . . . . 3.0 16.8 0.2 1.5 1.2 0.7 2.4

2001 . . . . . . . . . . . . . . . . . . 2.6 1.9 6.9 2.2 2.1 1.9 2.5

2002 . . . . . . . . . . . . . . . . . . 1.9 –2.7 3.2 2.4 1.5 1.6 3.4

2003 . . . . . . . . . . . . . . . . . . 1.8 1.0 1.7 2.0 2.1 1.0 2.7

63

PRICES

programme contract is offset by an increase in excise duty which applies permanently thereafter. In 2003, this system was to be applied until a maximum increase in duty of 0.014 euro per litre was reached. That condition was met by September, after two increases in duty during the same month.

Although all these primarily administrative price changes had a fairly sizeable effect on the infl ation profi le in 2002 and 2003, that profi le was nevertheless dictated more by the movement in the prices of the generally highly volatile components, namely unprocessed food and energy.

Volatile components of the HICP

After a steep price rise in 2001 and 2002, due partly to bad weather but primarily to the crisis in the meat sector, unprocessed food made only a small contribu-tion to infl ation during the year under review. In the fi rst half year, supply conditions were actually neutral or even favourable. In contrast, in August and September fairly sharp price increases were recorded for certain vege-tables, owing to the hot, dry summer. The rise in prices of unprocessed food thus exceeded 5 p.c. in September, before dropping to around 3 p.c. in December.

The movement in energy prices, adjusted for the above-mentioned changes in indirect taxes and gas and electricity tariffs, largely refl ects the movement in the crude oil price.

At the beginning of 2003, both internal political problems in Venezuela and Nigeria and the mounting tension in Iraq pushed up the price of crude oil in US dollars. As soon as it was clear that the war in Iraq would not last long, the price of Brent crude dropped to around 25 dollars per barrel in April. Subsequently, the price of crude went back up to 30 dollars per barrel in August, owing to the slow rate at which production was resumed in Iraq after the war, and the low level of stocks. In September, these factors partly disappeared and the price of oil dropped to 27 dollars a barrel. In the same month, however, OPEC decided to restrict supply from November, causing the oil price to hover around 29 dollars a barrel for the rest of the year.

The appreciation of the single currency led to a more favourable movement in the oil price denominated in euro, so that from the second quarter of 2003 the price was generally lower than it had been a year earlier. The fact that changes in the price of crude oil are passed on relatively quickly in consumer prices of energy products – more or less immediately in the case of fuel for transport

–1

0

1

2

3

4

5

–1

0

1

2

3

4

5

1999 2000 2001 2002 2003

1999 2000 2001 2002 2003

–1

0

1

2

3

4

5

1999 2000 2001 2002 2003

0.5

0.0

–0.5

–1.0

0.5

0.0

–0.5

–1.0

–1

0

1

2

3

4

5

CHART 46 INFLATION : ANALYTICAL BREAKDOWN

(Contributions of the various components in percentage points, unless otherwise stated)

Sources : EC, NBB.(1) Percentage changes compared to the corresponding month of the previous year.(2) Excluding the estimated effect, in January and July 2000, of the fact that prices

discounted in sales have been taken into account in the HICP since 2000.(3) Namely the network industries in which liberalisation is farthest advanced, i.e.

telecommunications, electricity and gas.(4) Measured by the HICP excluding unprocessed food and energy.

IMPACT OF PRIMARILY ADMINISTRATIVE PRICE CHANGES

HICP (1)

Impact of indirect taxes

Impact of measures relating to the radio and television licence fee

Impact of tariff changes in certain network industries

(3)

Unprocessed food

Energy

HICP (1)

(2)

Primarily administrative price changes

HICP excluding primarily administrative price changes

(1) (2)

Underlying trend in inflation (2)

(4)

PRIMARILY ADMINISTRATIVE PRICE CHANGES

INFLATION EXCLUDING PRIMARILY ADMINISTRATIVE PRICE CHANGES

64

equipment and heating oil – is evidence of a direct channel for transmitting changes in exchange rates to consumer prices. However, the impact of the fl uctuations in the price per barrel or the dollar exchange rate on consumer prices of energy was tempered by the fl at-rate character of excise duty and by the rise in costs of domestic origin, such as labour costs which are especially important in electricity production.

Overall, in the fi rst quarter of the year under review, energy made a signifi cant contribution to the rise in infl ation, with prices increasing by over 5 p.c. During the rest of the year, on the other hand, it was mainly price decreases that were recorded.

Underlying trend in infl ation

Exclusion of the above factors, namely primarily admin-istrative price changes and the movement in prices of the volatile components, unprocessed food and energy, yields a good indicator of the underlying trend in infl ation. While the average rate of price rises measured in that way quickened to 2.2 and 2.4 p.c. in 2001 and 2002 respec-tively, it stood at 2 p.c. during the year under review. This slower pace is linked to the appreciation of the euro,

which reduced the external pressure on prices. In addi-tion, internal pressures were moderated by the slower rise in unit labour costs and the persistent weakness of economic activity.

The decline in the underlying trend in infl ation which had begun early in 2002 came to an abrupt halt in the spring of the year under review, but afterwards a gradual down-ward trend was resumed so that from October onwards infl ation was below the low point reached in January. The interruption was largely due to the rising prices of processed food, the pace having accelerated from 1 p.c. in October 2002 to around 2.5 p.c. in June 2003, leaving aside the price increases resulting from higher indirect taxes on tobacco products. Many food product prices which had hardly risen at all between mid 2001 and mid 2002 following the introduction of euro notes and coins appeared to catch up. In the second half of the year under review, however, the rate of increase in the prices of proc-essed foods fell sharply, dropping to 1.4 p.c. in December. In services, the fundamental trend continued to decline during the year under review, despite high volatility attrib-utable to the prices of package holidays. That downward tendency is due mainly to the deceleration in labour costs, which play a more signifi cant role in services than in other

0

10

20

30

40

1999 2000 2001 2002 200390

100

110

120

130

CHART 47 CRUDE OIL PRICES AND CONSUMER PRICES OF ENERGY PRODUCTS

(1)

Sources : EC, IMF, NBB.(1) HICP for energy, excluding primarily administrative price changes.

Brent in euro (monthly averages) (left-hand scale)

Brent in US dollar (monthly averages) (left-hand scale)

Consumer prices of energy products (1)

(index 1996 = 100) (right-hand scale)

0

1

2

3

4

1999 2000 2001 2002 2003

0

1

2

3

4

CHART 48 UNDERLYING TREND IN INFLATION (1)


Sources : EC, NBB.(1) Measured by the HICP excluding unprocessed food and energy, and primarily

administrative price changes.

Underlying trend in inflation (1)

Services

Non-energy industrial goods

Processed food

of which :

65

PRICES

components of the HICP. It was also due to the slower rise in rents which, like wages, are linked to the ‘health’ index of consumer prices; the rise in that index dropped from 2.7 p.c. in 2001 to 1.8 and 1.5 p.c. respectively in 2002 and 2003. The rate of increase in prices of non-energy industrial goods fell from over 2 p.c. at the end of 2001 to around 1 p.c. during the second quarter of 2003, then remaining practically unchanged until the end of the year. The reduction in external pressure on prices, due to the appreciation of the euro, was particularly evident in this group of products.

While exchange rate movements are transmitted more or less immediately in the consumer prices of energy, the pass-through is slower for most other products. That is because the change is passed on via the production process, the initial stage of which involves imported goods whose prices are closely linked to the nominal effective exchange rate. Commodity prices are another determinant of import prices, contributing signifi cantly to their variability.

Import prices are then passed on into the producer prices. Given the existence of other cost factors, the scale of the producer price fl uctuations is less pronounced than that of import prices. Finally, consumer prices, especially prices of non-energy industrial goods, take longer to refl ect

producer prices and the transmission is only partial. The production structure of a small, open economy like Belgium may differ signifi cantly from the structure of consumption.

5.2 Infl ation differential between Belgium and the euro area

The existence of infl ation differentials in the euro area has attracted much attention in recent years. Thus, in September 2003 the ECB published a detailed study on the subject, entitled Infl ation differentials in the euro area : potential causes and policy implications. This showed that the infl ation differentials recorded in the euro area since 1999 are comparable in scale to the infl ation differentials between various regions of the United States. However, in contrast to the situation in that economy, many countries in the euro area have experienced persistent differences in infl ation rates over the past four years, as infl ation has been constantly above or constantly below the euro area average in many countries. Following the assessment of the monetary policy strategy in May 2003, the ECB Governing Council explicitly took account of the issue of infl ation differentials when setting the safety margin in the defi nition of price stability. Furthermore, the broad

–10

–5

0

5

10

15

1999 2000 2001 2002 2003 1999 2000 2001 2002 2003–10

–5

0

5

10

15

CHART 49 TRANSMISSION OF EXCHANGE RATE VARIATIONS TO PRICES OF NON-ENERGY PRODUCTS


Sources : BIS; EC; FPS Economy, SMEs, Self-employed and Energy ; NAI ; NBB.(1) Following a change in the methodology of the producer price index for the domestic market, there was a break in the series between the old index (base 1980 = 100) and the

new index (base 2000 = 100) which took effect on 1 January 2002.

IMPORT PRICES

Consumer prices of non-energy industrial goods

PRODUCER PRICES (1) AND CONSUMER PRICES

Producer prices (consumer goods)

Producer prices (excluding energy products and construction)

Import prices of consumer goods

Import prices excluding energy products

Nominal effective exchange rate for Belgium

66

economic policy guidelines for the period 2003-2005, drawn up in June 2003 by the European Council, required the Member States to identify undesirable infl ation differ-entials and, if appropriate, to counteract them by means of the available national policy instruments. The single monetary policy which, by defi nition, is geared to main-taining price stability in the monetary union as a whole, cannot attenuate the divergences in the specifi c pattern of infl ation in individual Member States.

However, it is important to examine what factors are behind the observed infl ation differentials, given that the implications for economic policy may differ according to the causes of the divergences. In a monetary union, national imbalances or the consequences of asymmetric shocks can no longer be corrected by modifi cations to monetary policy or the exchange rate, so that the mobility of the production factors and the relative fl ex-ibility of prices and wages between the Member States of a monetary union become still more important in the adjustment process. Consequently, in certain cases infl a-tion differentials are merely the mechanism whereby such an adjustment is made. Furthermore, infl ation differentials may, at least to some extent, represent a normal corollary to the real convergence between Member States, and in that case they do not affect the competitiveness of the countries concerned. This is referred to in the literature as the “Balassa-Samuelson” effect.

The infl ation differentials which are due to diver-gences in the operation of the product, labour and capital markets, allowing the individual countries to react differently to common shocks for varying lengths of time, are greater cause for concern. Moreover, the dysfunction and rigidities on those markets may be the source of wage and price movements which are out of step with the underlying economic fundamentals. That applies, for example, in the case of labour cost movements which do not adequately refl ect the movement in productivity, or changes in profi t margins which are out of line with the movement in the cost of capital. Finally, infl ation differen-tials may result from an inappropriate national economic policy, e.g. a highly pro-cyclical fi scal policy. Infl ation differentials of this type may cause a loss of competitiveness, economic activity and employment, especially if they are persistent and are not counteracted by a suitably tailored national economic policy.

In view of this problem, it is appropriate to examine closely the scale and development of the infl ation differ-ential between Belgium and the euro area, and to analyse the reasons for it.

At the launch of monetary union, infl ation in Belgium was close to that in the euro area, even though it some-times deviated from that rate temporarily. In contrast, from April 2002 infl ation in Belgium was well below the rate in the euro area. Since then it has averaged under 1.5 p.c. whereas, during that time, infl ation has hovered around 2 p.c. in the euro area. As mentioned earlier, the steep fall in infl ation in Belgium in 2002 is largely due to a whole set of primarily administrative price changes, the scale of which declined steadily during the year under review. Similar factors also exerted pressure on infl ation in the euro area, but in that case the pressure was upward and constant. In consequence, the infl ation differential between Belgium and the euro area, which was very marked in 2002, steadily diminished thereafter.

Measured by the “trimmed mean” method, the under-lying trends in infl ation are more similar, being close to 2 p.c. from the beginning of 2002 in both Belgium and the euro area. This method eliminates all extreme price movements regardless of product category. It thus excludes any sharp variations in prices which are primarily administrative, as well as large fl uctuations in gener-ally volatile components such as unprocessed food and energy. The movement in the price of this last component is another specifi c source of temporary infl ation differen-tials between Belgium and the euro area, as infl ation in Belgium is more sensitive to oil price fl uctuations.

An estimate of the sensitivity of the HICP to fl uctuations in the price of crude oil, based on a simple regression, shows that, except for Luxembourg, Belgium is the country with the highest consumer price elasticity : a 10 p.c. rise in the price of crude oil expressed in euro boosts infl ation by almost 0.2 percentage point during the same month or the following month, whereas this effect was only 0.1 percentage point in the euro area. The regression thus calculated measures only the most direct effect, which is probably mainly the effect on consumer prices of petrol, diesel and heating oil, or precisely the products which are soonest affected by fl uctuations in the price of crude oil.

The weights of petrol, diesel and heating oil in the HICP seem to be signifi cant determinants of the elasticity of the HICP. On the basis of the household consumption profi le, these weights are higher in Belgium than in the euro area, and therefore partly account for the greater elasticity. The excise duty charged on these products is another determinant of the sensitivity of the HICP to oil price fl uctuations, given that the generally fl at-rate character of these taxes tempers the effect of crude oil price variations, both upwards and downwards. Consequently, as a general rule, a relatively high level of excise duties reduces sensitivity, and vice versa. Altogether,

67

PRICES

the excise duties on petrol, diesel and heating oil are rela-tively low in Belgium, especially where heating oil is con-cerned. This difference in taxation therefore contributes in turn to the relatively high sensitivity of the Belgian HICP to fl uctuations in oil prices.

The parallelism of infl ation in Belgium and the euro area, if temporary infl ation differentials are disregarded, is not an observation specifi c only to the present infl ation cycle. As shown in box 5, cyclical movements in infl ation in Belgium were found to correspond broadly to those in the euro area for the whole period from 1986 to 2002.

Furthermore, the current practice of aligning movements in labour costs with those in neighbouring countries reduces the risk of asymmetrical shocks. The probability of such shocks is also lowered by the close integration of the Belgian economy into the euro area, and its high degree of openness.

However, being a very open economy, Belgium is exposed to any divergences in the movement in consumer prices caused by exchange rate fl uctuations : although the intro-duction of the euro has eliminated this possibility for trade with other euro area countries, it cannot be ruled out in the

case of trade with countries outside the euro area, espe-cially as Belgium imports more, in relative terms, from out-side the euro area than do the other member countries.

Thus, if imports of goods from outside the euro area are measured on a comparable basis for the two economies – namely the Community concept – they came to 18 p.c. of total fi nal expenditure for Belgium in 2002, against just 12 p.c. for the euro area. However, given the importance of transit, distribution and processing activity for the Belgian economy, it is diffi cult to assess to what extent that difference infl uences consumer price infl ation, although on the basis of the points considered below, the impact is likely to be rather limited. Thus, the openness of the Belgian economy becomes considerably less if it is measured according to the national concept, which excludes transit traffi c, notably via Belgian sea ports. Measured according to that concept, imports of goods from outside the euro area came to around 15 p.c. of fi nal expenditure in 2002, halving the difference in relation to the euro area. In addition, the remaining differ-ence occurs largely in intermediate goods, many of which are re-exported after processing. The openness of the Belgian economy for consumer goods excluding transit traffi c is more comparable to that of the euro area.

0

1

2

3

4

1999 2000 2001 2002 2003 1999 2000 2001 2002 20030

1

2

3

4

CHART 50 INFLATION IN BELGIUM AND THE EURO AREA

(Percentage changes compared to the corresponding month of the previous year)

Sources : EC, NBB.(1) Excluding the estimated effect, in January and July 2000, of the fact that prices discounted in sales have been taken into account in the HICP since 2000.(2) Measured via the components of the HICP according to the JB-Monthly estimator, discussed in Aucremanne L. (2000), The use of robust estimators as measures of core

inflation, National Bank of Belgium Working Papers – Research Series, n° 2 (March).

TRIMMED MEAN (2)

Belgium Euro area

Low level of stocks and uncertainty

End of conflict in Iraq

Strike in Venezuela and war in Iraq

Fall in oil prices after 11 September

HICP (1) AND EFFECT OF OIL PRICE FLUCTUATIONS

Tensions in Israel and Iraq

Easing of international tensions

OPEC reduces supply

68

Box 5 – Cyclical infl ation in Belgium and the euro area

During the period from 1986 to 2002, the cyclical component of infl ation in Belgium usually followed a similar course to that in the euro area. In order to identify that component, the differential between actual infl ation and the average rate of infl ation over the period considered was calculated for the two economies. However, for the euro area the period considered was divided into two sub-periods, namely 1986-1994 and 1997-2002 : this was an attempt to take account of the change in the monetary policy regime which took place in the majority of euro area countries in the run-up to the introduction of the single currency, triggering a sharp fall in infl ation in 1995 and 1996. No equivalent effect occurred in Belgium, where monetary policy was closely geared to price stability throughout the period.

If infl ation is adjusted to take account of these divergences in the respective monetary policy regimes, it is apparent that the two economies feature short-term Phillips curves with similar slopes.

Comparable cyclical movements in unemployment – measured by the difference between observed unemployment and the non-infl ationary unemployment rate – accompany comparable cyclical movements in infl ation. Given that the slopes of these curves are inversely proportional to the rigidity of the labour and product markets, this observation suggests that those rigidities, taken as a whole, are of the same order of magnitude in the two economies. That implies that the reaction of Belgian infl ation to symmetrical shocks of a cyclical nature corresponds overall to the reaction of infl ation in the euro area.

86

87

88

89

90

91

92

9394

95

96

97

98

99

00

01

02

86

87

88

8990

91

92

93

94

97

9899

00

01 02

1.5

1.0

0.5

0.0

–0.5

–1.0

–1.5–2.5 –2.0 –1.5 –1.0 –0.5 0.0 0.5 1.0 1.5 2.0 2.5

1.5

1.0

0.5

0.0

–0.5

–1.0

–1.5–2.5 –2.0 –1.5 –1.0 –0.5 0.0 0.5 1.0 1.5 2.0 2.5

Sources : EC, ECB, NBB.(1) Measured by the difference between observed inflation and average inflation during the period 1986-2002.(2) Measured by the difference between observed inflation and average inflation during the period considered, namely 1986-1994 and 1997-2002 respectively.(3) Measured by the difference between the observed unemployment rate and the non-inflationary unemployment rate (NAIRU), as estimated by the EC.

SHORT-TERM PHILLIPS CURVE

(Percentage points)

BELGIUM EURO AREA

Cyc

lical

infla

tion

(1)

Cyc

lical

infla

tion

(2)

Cyclical unemployment (3) Cyclical unemployment

(3)

69

PRICES

Overall, it is evident that the infl ation differentials recorded between Belgium and the euro area since mon-etary unifi cation are either very short-lived and without any systematic upward or downward bias, or are attribut-able to price changes which are primarily administrative. Furthermore, infl ation in Belgium generally reacts to cyclical fl uctuations in the same way as infl ation in the euro area. Finally, the structure of Belgium’s foreign trade does not appear to be a source of differing sensitivity to exchange rate variations. The conclusion is therefore that the common monetary policy, determined on the basis of the situation of the euro area as a whole, is well suited to Belgium in the current environment, taking account of the current wage-fi xing mechanism.

20 30 40 50 60 70 80 90 200 250 300 350 400 450 500 550

IT

AT

NLPT

EUR

IE FR

DE

ES

FIBE

GR

LU

0.035

0.030

0.025

0.020

0.015

0.010

0.005

0.000

–0.005

–0.010

0.035

0.030

0.025

0.020

0.015

0.010

0.005

0.000

–0.005

–0.010

IT

AT

NL PT

EUR

IEFR

ES

FI

BE

GR

LU

DE

CHART 51 FACTORS EXPLAINING THE SENSITIVITY OF INFLATION TO OIL PRICE FLUCTUATIONS

Sources : EC, NBB.(1) Measured by the sum of the coefficients β2 and β3 in πt = β1 + β2πt

oil + β3πt-1oil (sample January 1999-October 2003). πt is the monthly percentage change of the HICP ; πt

oil is the monthly percentage change of the price of Brent crude, expressed in euro.

(2) Sum of the average weights applicable during the period 1999-2003 to the components “Fuel and lubricants for private cars” and “Liquid fuels” in the HICP (per thousand).(3) Excise duties (euro per 1000 litres, average for the period January 1999-October 2003) on petrol, diesel and heating oil, weighted according to their respective weights in the

HICP.

Excise duty (3)HICP weights

(2)

Elas

ticity

of

the

HIC

P (1

)

Elas

ticity

of

the

HIC

P (1

)

0

5

10

15

20

0

5

10

15

20

CHART 52 OPENNESS TO IMPORTS OF GOODS FROM OUTSIDE THE EURO AREA IN 2002

(Percentages of total final expenditure)

Sources : EC, NAI.(1) According to the national concept, which is based on the principle of transfer of

ownership between a resident and a non-resident and therefore does not include transit flows between non-residents.

(2) According to the Community concept, which is based on the principle of goods crossing frontiers, and includes transit flows between non-residents.

Belgium (1) Euro area

(2)

Imports of goods from outside the euro area

Imports of intermediate goods

Imports of consumer goods

Imports of investment goods

of which :

71

PUBLIC FINANCES

6. Public finances

6.1 Revenue, expenditure and overall balance

For the fourth consecutive year, public fi nances stayed out of the red, ending with a small surplus of 0.2. p.c. of GDP and thus surpassing the target of a balanced budget in 2003, set by the November 2002 stability programme. Nevertheless, that result could not have been achieved if Belgacom, the Belgian public telephony company, had not paid over a sum of 5 billion euro in return for the federal government’s assumption of the company’s future pen-sion liabilities. That represented a capital transfer equal to almost 1.9 p.c. of GDP. In principle, this operation did not affect the State’s asset position, since the transfer received corresponds more or less to the estimated actuarial value of the pension liabilities that the federal government will have to meet in the future for Belgacom employees.

However, it should be pointed out that, when this report went to press, the accounting treatment of that operation as a capital transfer rather than a fi nancial transaction not affecting the overall balance was still subject to examina-tion by Eurostat, the Statistical Offi ce of the European Communities.

While the course set by the stability programme was thus maintained in 2003, the persistent weakness of economic activity obliged the federal government to downgrade the targets for 2004 and the subsequent years. In the November 2003 update, the stability programme provides for a budget in constant balance from 2004 to 2006, and a return to surplus in 2007. The target surplus for that date is 0.3 p.c. of GDP, whereas in November 2002 a surplus of that size was to be achieved by 2004, and a surplus of 0.5 p.c. of GDP in 2005.

TABLE 25 TARGETS FOR THE FINANCING REQUIREMENT (–) OR CAPACITY OF BELGIAN GENERAL GOVERNMENT


Sources : NAI, FPS Finance, NBB.(1) The ESA 95 methodology was adapted in 2001 to exclude from the calculation of the overall balance the net interest gains on certain financial transactions, such as swaps.

However, in the framework of the excessive public deficit procedure no account is taken of this adjustment, which is also disregarded in the EC’s assessment of the stability programme. The resulting differences are insignificant so that, for simplicity, this report gives only the data according to the ESA 95.

(2) Including the capital transfer of 1.9 p.c. of GDP made by Belgacom in return for the government’s assumption of its pension liabilities. However, as indicated by table 32, the impact of non-recurring transactions taken together totals only 1.5 p.c. of GDP.

1999 2000 2001 2002 2003 2004 2005 2006 2007

Stability programmes and updates

December 2000 . . . . . . . . . . . . . . –0.7 –0.1 0.2 0.3 0.5 0.6 0.7

November 2001 . . . . . . . . . . . . . . –0.6 0.1 0.0 0.0 0.5 0.6 0.7

November 2002 . . . . . . . . . . . . . . –0.5 0.1 0.4 0.0 0.0 0.3 0.5

November 2003 . . . . . . . . . . . . . . –0.4 0.1 0.5 0.0 0.2 0.0 0.0 0.0 0.3

p.m. Actual figures (1) . . . . . . . . . . . –0.4 0.1 0.5 0.0 0.2 (2) e

72

In the November 2003 stability programme, the federal government explicitly confi rmed that the strategy of speeding up the reduction of the public debt, as is required in order to cater, in the future, for the impact of the ageing population on public fi nances, must continue to be based on the creation of budget surpluses in the medium term. In the economic context predicted in that programme, strict budget discipline is vital in order to meet such a commitment, especially as the measures taken in recent years will entail additional charges, and – in the short term – the target balance is based partly on non-structural measures. That commitment also pre-supposes close coordination between the public authori-ties, especially between the federal government and the executive authorities of the federated entities. The cooper-ation agreement concluded to that end in December 2000 was updated on 22 September 2003 and set the budget targets for Entity II – namely the communities, regions and local authorities – up to 2005, to ensure that public fi nances remain in balance overall.

Revenue

In 2003, after rising for two years, the fi scal and parafi scal revenues of general government declined to just below the level reached in 2000 : they totalled 44.9 p.c. of GDP against 45.7 p.c. in 2002. This large reduction was due to new measures to cut taxes and social security contribu-tions and a shift in the structure of GDP, in contrast to 2002 when that factor had more than offset the impact of these cuts. In 2003, the nominal growth of earned income and private consumption as a whole was slightly lower than the growth of GDP, whereas in the previous year these components – which are taxed more heavily than other incomes or expenditure – had increased their share of GDP.

The reduction in overall fi scal and parafi scal charges in 2003 was attributable mainly to the levies on earned income. Personal income taxes are the revenue category where the government’s measures had the largest effect.

TABLE 26 REVENUE OF GENERAL GOVERNMENT (1)


Sources : NAI, NBB.(1) In accordance with the ESA 95, total revenue of general government does not include the proceeds of fiscal revenue which the government transfers to the EU.(2) Between 2001 and 2002, fiscal and parafiscal revenue and total revenue were augmented by 0.2 and 0.3 p.c. of GDP respectively, by accounting factors : first, the

reclassification of the public radio and television broadcasting companies from the non-financial corporations sector to the general government sector, and second, the shift between VAT and GNI resources following the EU financing reform. Those factors increased both revenue and expenditure without any significant effect on the overall balance.

(3) Mainly withholding tax on earned income, advance payments, assessments and the proceeds of additional centimes on personal income tax.(4) Total social contributions, including the special social security contribution and the contributions of persons not in work.(5) Mainly advance payments, assessments and withholding tax on corporate income from movable property.(6) Mainly withholding tax on income from movable property of individuals, withholding tax on income from immovable property (including the proceeds of additional centimes),

inheritance taxes and registration fees.(7) Income from property, imputed social contributions, current transfers and capital transfers from other sectors. In 2003 this includes the capital transfer of 1.9 p.c. of GDP

made by Belgacom in return for the government’s assumption of its pension liabilities.

1999 2000 2001 2002 (2) 2003 e

Fiscal and parafiscal revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.1 45.0 45.2 45.7 44.9

Levies weighing chiefly on earned income . . . . . . . . . . . . . . 26.9 26.9 27.6 27.8 27.2

Personal income tax (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3 12.6 12.9 12.9 12.6

Social security contributions (4) . . . . . . . . . . . . . . . . . . . . . . 14.6 14.4 14.7 14.9 14.6

Taxes on company profits (5) . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 3.3 3.2 3.1 3.0

Levies on other incomes and on assets (6) . . . . . . . . . . . . . . . 3.3 3.4 3.4 3.5 3.4

Taxes on goods and services . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 11.4 11.0 11.4 11.2

of which :

VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 6.9 6.6 6.9 6.7

Excise duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 2.3 2.2 2.3 2.3

Non-fiscal and non-parafiscal revenue (7) . . . . . . . . . . . . . . . . . . 4.6 4.5 4.8 4.8 6.5

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.7 49.5 50.0 50.5 51.4

73

PUBLIC FINANCES

First, the continuing reform of personal income tax had an additional impact of just over 800 million euro in 2003. Four new provisions were incorporated wholly or partly in the calculation of the withholding tax on earned income, namely a widening of the income bands to which the 30 and 40 p.c. tax rates apply, the reduction of the highest marginal rate of tax from 52 to 50 p.c., the second stage

of the increase from 20 to 25 p.c. in the rate applicable to the fi rst tranche of the standard allowance for profes-sional expenses, and fi nally, the fi rst phase in the align-ment of the married persons’ tax-free allowance with that for cohabitants. In addition, a number of measures con-cerning the tax allowance for transport costs, relating to income of previous years, had a minor impact on revenue in 2003 via the tax assessments.

Next, the fi nal phase in the progressive abolition of the complementary crisis contribution led to an additional fall in revenue of 303 million euro : since 1 January 2003, this tax has been entirely eliminated from the tax scales for the withholding tax on earned income.

Finally, a whole range of shifts in time between amounts collected via the withholding tax on earned income and via tax assessments contributed to a 330 million euro reduction in tax revenue. The fact that the scales for the withholding tax on earned income were not fully adjusted for infl ation in 2001 and 2002 increased the revenue generated by that tax in those two years, but reduced the tax assessments in 2003. This shift was only partly offset by the effect of two other measures : fi rst, the fact that the withholding tax on earned income took better account of the income splitting from 2001 depressed revenue in that year, but boosted the tax assessments for 2003 ; also, the increase from 6 to 6.7 p.c. in the rate of additional local taxes levied via the withholding tax on earned income, raised in 2003, led to advance revenues during the year under review.

The impact of these various provisions on the proceeds from personal income tax was partly offset by the dis-appearance of the effect of the one-off fl at-rate tax reduction of 62 euro per person, granted by the Flemish Region to its residents on their income for the year 2000. This reduction had cut the tax assessments by 220 million euro in 2002.

Moreover, revenue generated by the additional centimes levied by local authorities increased in 2003, but to a lesser extent than in the two preceding years. Though the effect of the increases in the rate of the additional centimes on personal income tax, introduced by those authorities to compensate for the automatic decline caused by the federal tax reform, was slightly greater, the increase in the rate of the additional centimes on the withholding tax on immovable income was smaller in the year under review than in 2001 and 2002.

TABLE 27 MAIN FISCAL AND PARAFISCAL MEASURES

(Millions of euro, changes compared to the previous year)

Sources : Budgets, NBB.(1) The corporation tax reform implemented in 2003 is not included in this table

since, according to official sources, its budgetary effect is neutral.

2001 2002 2003

Fiscal measures . . . . . . . . . . . . . 95 –1,581 –836

Structural measures . . . . . . . . –105 –1,361 –726

Federal government (1) . . . . –275 –727 –821

Personal income tax reform . . . . . . . . . . . . 0 –296 –808

Abolition of the complementary crisis contribution . . . . . . . . –275 –431 –303

Indirect taxes . . . . . . . . . 0 0 290

Communities and regions . . 0 –783 13

Abolition or reform of the radio and television licence fee . . . . . . . . . 0 –517 –19

Reform of registration fees in the Flemish Region . . . . . . . . . . . . 0 –367 0

Other . . . . . . . . . . . . . . . 0 101 32

Local authorities . . . . . . . . . 170 149 82

Additional centimes on personal income tax . . 8 14 31

Endogenous effect of the federal reform . . 0 0 –4

Rate increase . . . . . . . 8 14 35

Additional centimes on the withholding tax on immovable property . . 162 135 51

Non-recurring measures . . . . . 0 –220 220

Flat-rate reduction in personal income tax in the Flemish Region . . . . . 0 –220 220

Shifts between withholding tax on earned income and assessments . . . . . . . . . . . . 200 0 –330

Parafiscal measures . . . . . . . . . . –269 –138 –233

Employers’ contributions . . . . –256 –144 –166

Employees’ contributions . . . . –13 6 –67

Total . . . . . . . . . . . . . . . . . . . . . –174 –1,719 –1,069

p.m. Percentages of GDP . . . . . –0.1 –0.7 –0.4

74

Apart from these fi scal measures, it was also decided to further reduce the social security contributions, namely by 0.1 p.c. of GDP in 2003. This reduction mainly concerned the continuing alignment of the system of employers’ contributions applicable to non-manual workers with the more favourable system applicable to manual workers, and extension of the reduction in employees’ contribu-tions for the lowest wage earners. At the Employment Conference in September and October 2003, further cuts in social security contributions were scheduled which should total 725 million euro by 2005, not taking into account a sum of 115 million intended for subsidies under the Social Maribel scheme.

As a result of these measures and those taken in pre-vious years, the implicit tax rate on earned income – i.e. the fi scal and parafi scal levies as a percentage of wages calculated on the basis of the national accounts – dropped from 44.6 p.c. in 1998 to 43.4 p.c. in 2003.

According to the fi gures available from the EC, it appears that, in 2001, this tax rate in Belgium was 6.7 percentage points higher than the EU average. It was practically equal to the rate in France and Finland, and about 5 percentage points below the rate in Sweden, but higher – often much higher – than the rate in the other countries. Belgium shows a handicap against the EU average in each of the three levy categories – personal income tax, employees’ contributions and employers’ contributions.

While this high rate of levies on earned income allows, in particular, the fi nancing of social protection, it undeniably has a demotivating effect on the labour supply and on demand for labour. Apart from the level of the implicit burden, the composition or structure of that burden is probably just as important in this respect. The level of the implicit tax rate can be regarded as the outcome of the level of the marginal rates applicable to the various income bands combined with all the other determinants, such as tax-deductible expenditure (e.g. granted for the acquisition and renovation of property, long-term sav-ings or because of the family situation), the level of the tax-free allowance and the deduction of professional expenses.

From the point of view of economic growth, the level of the marginal rates undoubtedly plays a key role, as those rates determine the net benefi ts, for taxpayers, of an additional labour input. In 2001, whatever the level of individual income, fi scal and parafi scal levies accounted for around two-thirds of any increase in labour costs in Belgium. On the basis of the OECD data, Belgium’s mar-ginal rates appear to be 13 to 20 percentage points above the EU average.

0

10

20

30

40

50

0

10

20

30

40

50

42

43

44

45

46

42

43

44

45

46

1995

1996

1997

1998

1999

2000

2001

0

5

10

15

20

25

0

5

10

15

20

25

2002

CHART 53 FISCAL AND PARAFISCAL BURDEN ON LABOUR INCOME

(Percentages of labour costs)

Sources : EC, OECD, NBB.(1) Calculated on the basis of the national accounts.(2) Average wage of a manual worker, in each country considered.(3) On the basis of the 2002 income parameters. These are the rates applicable to

the amounts in the highest income band, the threshold for which varies from one country to another.

Employees’ contributions

Employers’ contributions

Direct taxes

b. International comparison (2001)

Marginal rate for various income levels

100 pct. Highest incomes

(3)

AVERAGE IMPLICIT TAX RATE ON WAGES AND MARGINAL RATES (2001)(Percentage points, differences between Belgium and the EU)

AVERAGE IMPLICIT TAX RATE ON WAGES (1)

a. Trend in Belgium

Average implicit tax rate

(1)

EU average

SE FI BE

FR IT DK

AT

DE

GR

PT NL

LU ES IE GB

2003

e

of average income (2)

167 pct.67 pct.

75

PUBLIC FINANCES

The fact that this difference is much larger than the differ-ential mentioned above for the implicit burden suggests that the infl uence of tax-deductible expenditure and other variables is more favourable to taxpayers in Belgium than elsewhere. Such a structure for the fi scal and parafi scal burden – high marginal rates partly attenuated by other tax variables – is probably not the most conducive to eco-nomic growth and employment.

Taxes on corporate profi ts, which represented 3.3 p.c. of GDP in 2000, dropped to 3.1 p.c. in 2002 following the reduction in the share of profi ts in GDP.

The corporation tax reform took effect on 1 January 2003. It consisted mainly of a reduction in the standard nominal tax rate from 39 to 33 p.c. – or from 40.17 to 33.99 p.c. if the complementary crisis contribution is taken into account – plus a cut in the reduced rates and the exemp-tion applicable to profi ts reserved for investment, specifi c measures which mainly benefi t SMEs.

The reform was intended to be neutral in its budgetary effect in 2003 ; a number of compensatory measures were therefore taken, aimed mainly at expanding the tax base. The most important of these were, fi rst, that businesses taxed at the standard rate are from now on allowed to depreciate their investments only pro rata temporis, and next, that the conditions for applying the rules on fi nally

taxed incomes were tightened up, and lastly, that liquida-tion gains resulting from the division of company assets or repurchase of own shares are from now on subject to a 10 p.c. withholding tax.

During the year under review, advance payments by businesses remained practically unchanged in nominal terms. This stagnation contrasts with the rise in corpo-rate profi ts suggested by highly provisional indicators. However, it is not possible to draw conclusions on that basis concerning the budgetary impact of the reform, as such an assessment can only be made when information is available on the proceeds from taxes relating to the year under review, paid at a later stage via the assessments, and on the basis of more defi nite fi gures on the move-ment in profi ts.

The cut in the nominal tax rate on 1 January 2003 fi ts in with a downward trend in corporation tax rates already apparent for a number of years in many European countries. It had therefore become necessary to safeguard the attractiveness of Belgium as a location for economic activities. In 2002, the Belgian rate was the highest in the EU, but this cut has now brought the tax rate to around 1 percentage point below the EU average. The major-ity of countries deviate little from that average, except for Ireland – where the rate is only 12.5 p.c. – and the

0

10

20

30

40

0

10

20

30

40

CHART 54 NOMINAL TAX RATE ON CORPORATE PROFITS (1)

(2003, percentages)

Source : OECD.(1) Including any additional levies, such as regional and local taxes.(2) Disregarding the non-recurring increase of 1.5 percentage points on the occasion

of the floods in Germany.

EU average

Central government

Other public authorities

DE

(2)

IT FR ES GR NL

AT

BE PT LU DK

GB FI SE IE

0

10

20

30

40

0

10

20

30

40

CHART 55 IMPLICIT TAX BURDEN ON PRIVATE CONSUMPTION

(1)

(Percentages, 2001)

Source : EC.(1) Taxes as a percentage of private consumption. Since indirect taxes are also

payable on intermediate consumption and investment expenditure of general government, and on investment in housing, the implicit rates calculated by the EC are overestimated, though the degree of overestimation may vary from one country to another.

DK FI SE IE NL

LU FR AT

BE

GR

GB PT DE IT ES

VAT

Other

EU average : VAT

EU average : total

76

TABLE 28 MAIN ELEMENTS OF THE TAX BURDEN ON PRIVATE CONSUMPTION

(End of 2003, percentages, unless otherwise stated)

Source : EC.(1) Weighted by GDP.(2) Euro per 1,000 litres.(3) Euro per 1,000 cigarettes.(4) Euro per hectolitre per degree Plato.(5) Euro per hectolitre.(6) Difference in percentage points.

Belgium EU (1) Percentagedifference

Implicit VAT burden (2001) . . . . 13.7 12.5 1.2 (6)

p.m. Nominal rate :

Standard . . . . . . . . . . . . . . 21 18.5 2.5 (6)

Applied to food . . . . . . . . 6 5.8 0.2 (6)

Implicit burden of other indirect taxes (2001) . . . . . . . . . . . . . . 7.8 8.1 –0.3 (6)

p.m. Amount on :

Mineral oils (2) . . . . . . . . . .

Eurosuper . . . . . . . . . . . 536.2 581.2 –7.7

Diesel . . . . . . . . . . . . . . . 304.9 438.0 –30.4

Heating oil . . . . . . . . . . . 18.5 127.9 –85.5

Tobacco . . . . . . . . . . . . . .

Cigarettes (3) . . . . . . . . . . 95.8 114.8 –16.6

Alcoholic beverages . . . . .

Beer (4) . . . . . . . . . . . . . . 1.7 5.3 –67.6

Non-sparkling wine (5) . . 47.1 64.1 –26.4

Overall implicit burden (2001) . . 21.5 20.6 0.9 (6)

Scandinavian countries which, like Belgium, have a high overall fi scal and parafi scal burden but have chosen to keep the nominal rates of corporation tax at a relatively low level.

However, comparison of the nominal rates does not give a true picture of the overall tax system in the various countries, in that it fails to take account, for example, of any deductions or preferential schemes which may have a major impact on the effective tax rate. According to a study commissioned by the EC which considers only the most common deductions, i.e. excluding any preferential schemes, both the nominal and the effective tax rate in Belgium exceeded the EU average by around 4 percentage points in 2001. Conversely, on the basis of the national accounts, the EC data for the 1998-2000 period reveal that the tax burden on profi ts of all companies taken together was lower in Belgium than the Union average.

The proceeds from taxes on goods and services were boosted by various measures during the year under review. Thus, in January and March, the excise duty on tobacco was increased and, under the coalition agree-ment of July 2003, the energy contribution was also raised in August in the case of electricity, heating oil, coal, petrol and diesel, whereas the contribution on natural gas was slightly reduced. That agreement also provides for a progressive increase in excise duties on petrol and diesel up to 2007, via a ratchet system applicable to petrol from 2003 and to diesel from 2004. According to this system, each time the price of petrol or diesel is cut under the programme contract, half of the reduction is neutralised by a simultaneous increase in excise duty : given the volatility caused by the terms of the programme contract, the potential increases approved, totalling a maximum of 14 euro per thousand litres in 2003 and 28 euro in each of the subsequent years, are likely to take effect within a relatively short space of time. Thus, for 2003, the whole of the planned increase in excise duty was implemented within the month of September. On the other hand, the effect of the reductions in taxes on goods and services was negligible in 2003, the reduction in the radio and television licence fee in the Wallonia Region being the only measure to have an impact in the year under review. The abolition of this fee in the other regions of the country had reduced indirect taxes by an amount equivalent to 0.2 percentage point of GDP in 2002.

Despite the marked upward effect exerted by the afore-mentioned measures, the share of taxes on goods and services in GDP fell from 11.4 to 11.2 p.c. during the year under review. This fall was attributable exclusively to the movement in VAT revenue, which increased by only 1.4 p.c.

As in the case of petrol and diesel, additional increases in excise duty on tobacco are planned for the years ahead. These measures taken to raise indirect taxes contrast with the cuts already made or scheduled in respect of the levies on labour. This shift within fi scal and parafi scal revenue is helping to reduce the concentration of the tax burden on the factor labour and sharing it more evenly between labour and consumption.

This brought the composition of the levies more into line with that in the EU. In 2001, the implicit fi scal and parafi scal burden on labour was 6.7 percentage points higher in Belgium than in the EU, while the implicit rate on consumption – at 21.5 p.c. – was only 0.9 percentage point above the European average.

77

PUBLIC FINANCES

This excess is due exclusively to the implicit burden of VAT which was 1.2 percentage points above the EU average. In contrast, the implicit rate of other taxes on consump-tion was 0.3 percentage point lower in Belgium.

The high level of the implicit VAT burden – defi ned by the EC as the VAT proceeds in percentage of private consump-tion – is due to the standard rate of VAT which, at 21 p.c., exceeded the European average by 2.5 percentage points at the end of 2003. On the other hand, the difference in the nominal rate was only 0.2 percentage point for food-stuffs, which are a major consumption category.

The other taxes on consumption mainly cover excise duties, but also a range of other levies such as the energy contribution. Comparison of these taxes for some major product groups shows that, at the end of the year under review, the rates applied in Belgium were below the EU average, especially in the case of mineral oils, tobacco and alcoholic beverages. The largest divergence pertains to heating oil : the tax was much lower in Belgium and Luxembourg than in the other countries, and represented only a small fraction of the European average.

Primary expenditure

The particularly sustained growth of primary expenditure at constant prices in 2002 and 2003, combined with an average annual increase in GDP of just 0.8 p.c. over the past three years, has signifi cantly increased this expendi-ture as a percentage of GDP. In 2003 it came to 45.6 p.c., 3 percentage points higher than in 2000.

During the year under review, the real rise in primary expenditure came to 4.3 p.c., practically the same as the previous year’s increase. However, the apparent trend in this expenditure is not a true indication of the govern-ment’s structural policy on the subject, since it is greatly distorted by the infl uence of non-recurrent factors and the economic cycle.

In 2003, non-recurrent factors infl ated the real rise in pri-mary expenditure by 1.2 percentage points. First, the pro-ceeds from the sale of immovable assets – recorded as neg-ative expenditure in accordance with the ESA 95 – totalled 188 million euro, while the year before, sales of land and buildings had raised over 380 million euro. Next, in 2003

TABLE 29 PRIMARY EXPENDITURE OF GENERAL GOVERNMENT

(Deflated by the national consumer price index, percentage changes compared to the previous year, unless otherwise stated)

Sources : NAI, NBB.(1) Percentages of GDP.(2) Contribution of primary expenditure to real recorded growth. The increase in primary expenditure between 2001 and 2002 is inflated by 0.3 p.c. of GDP, by accounting

factors, namely the reclassification of the public radio and television companies from the non-financial corporations sector to the general government sector, and the shift between VAT and GNP resources following the EU financing reform. These factors inflated both revenue and expenditure, without any significant impact on the overall balance.

(3) The expenditure of the subsectors includes mutual transfers, except for the federal government of the social security debt in 2001.(4) Effect caused by the difference between the actual indexation of public sector wages and social security benefits and the rise in the national consumer price index.

1999 2000 2001 2002 2003 e Average1993-2003 e

Level recorded (1) . . . . . . . . . . . . . . . . . . . . . . . . . 43.1 42.6 42.9 44.4 45.6

Real growth recorded . . . . . . . . . . . . . . . . . . . . . 3.3 1.3 0.6 4.4 4.3 2.3

Influence of non-recurrent and cyclical factors (2)

Non-recurrent factors (2) . . . . . . . . . . . . . . . . . . 0.2 0.0 –1.2 1.2 1.2 0.2

Unemployment spending, excluding measures –0.3 –0.3 0.0 0.3 0.2 0.0

Adjusted real growth (3) : 3.4 1.7 1.8 2.9 2.8 2.1

Social security . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 1.8 3.5 2.4 3.5 2.0

Federal government . . . . . . . . . . . . . . . . . . . . . 2.2 1.8 0.4 1.6 3.1 0.9

Communities and regions . . . . . . . . . . . . . . . . 3.8 0.4 2.3 5.0 1.7 2.5

Local authorities . . . . . . . . . . . . . . . . . . . . . . . 6.5 4.3 –2.1 2.3 1.5 2.6

p.m. Effect of indexation (4) . . . . . . . . . . . . . . . . . 0.0 –0.7 0.0 0.7 –0.2 –0.1

78

the government gave the Post a capital grant of 300 million. Finally, in the year under review the federal government made an advance payment to the BNRC, totalling more than a billion euro, of investment aid and part of the oper-ating subsidies intended in principle for 2004.

The growth rate of primary expenditure is also affected by the position in the economic cycle, via the movement in unemployment benefi ts. The persistent weakness of economic activity in the fi rst half of the year under review once again led to a sharp rise in the numbers of wholly unemployed persons and in temporary lay-off days so that, leaving aside the effect of the measures discussed below, expenditure on unemployment benefi ts grew in volume by almost 8 p.c.

After adjustment for the effects of all the non-recurrent and cyclical factors, the growth of primary expenditure came to 2.8 p.c. in 2003, a rate similar to that recorded in 2002 but higher than the trend rise in primary expendi-ture – 2.1 p.c. over the past ten years – and the potential growth of GDP.

In 2002 the system for index-linking social security ben-efi ts and the salaries of civil sevants had caused a sig-nifi cant rise of 0.7 percentage point in the effective real growth of expenditure, while in the year under review it had a slightly curbing effect of 0.2 percentage point. As discussed in the chapter on the labour market and labour costs, this mechanism in fact entails a certain time-lag between the movement in consumer prices and the actual indexation of pay or social transfers : in 2003, for the general government sector, the impact of indexation was 0.3 percentage point below infl ation.

The movement in the primary expenditure of general government was not uniform throughout the constituent subsectors. While social security expenditure and federal government spending increased sharply, growth was moderate for the communities and regions and the local authorities during the year under review.

The volume of primary expenditure of social security expanded strongly in 2003, at a rate of 3.5 p.c., after disregarding the effect of the slack economic activity on unemployment expenditure. That growth was due mainly to the steep rise in health expenditure and, to a lesser extent, to the impact of various social measures and the introduction of the time-credit system.

Social security expenditure is greatly infl uenced, on a structural basis, by expenditure on health care. In the past ten years, health care spending has grown twice as fast as other expenditure in this sector. The main determinants of this structural trend are highlighted at the end of this chapter. The year 2002 was an exception to that trend, with real growth of health care spending totalling just 1.3 p.c. The economy measures, applied mainly in the medicinal products sector, were one factor. Another was the temporary acceleration in the rate of invoicing during the previous year, which had caused spending to contract sharply in the fi rst few months of 2002. In 2003, the repercussions of this contributed to the strong expansion in the volume of health care spending, which came to 6.3 p.c. over the year as a whole.

Next, some important social measures were implemented which, in 2003, mainly concerned the lowest pen-sions. Since 2000, the oldest pensions have gradually been adjusted in line with prosperity in order to correct the automatic decline in relative incomes of the older

TABLE 30 PRIMARY EXPENDITURE OF SOCIAL SECURITY, ADJUSTED FOR THE INFLUENCE OF THE CYCLE ON UNEMPLOYMENT SPENDING

(Deflated by the national consumer price index, percentage changes compared to the previous year, unless otherwise stated)

Sources : NAI, NBB.

1999 2000 2001 2002 2003 e Average1993-2003 e

p.m.Nominal

expenditurein 2003 e,

billions of euros

Primary expenditure, cyclically adjusted . . 2.8 1.8 3.5 2.4 3.5 2.0 52.1

Health care . . . . . . . . . . . . . . . . . . . . 4.9 3.8 5.1 1.3 6.3 3.2 15.4

Private sector pensions . . . . . . . . . . . 1.4 0.3 1.4 2.5 2.1 1.4 16.3

Other expenditure . . . . . . . . . . . . . . . 2.6 1.6 4.2 3.1 2.7 1.7 20.4

79

PUBLIC FINANCES

pensioners. On 1 January 2003, pensions of employees and the self-employed which had commenced before 1993 were once again increased by 1 p.c., and those com-mencing in 1993, 1994 and 1995 were raised by 2 p.c., at an overall cost of some 120 million euro. The amount of the minimum pension, including that paid to persons with an incomplete or mixed career history, was also increased on 1 April 2003 : for a full year, that measure will cost around 130 million euro. The whole raft of measures concerning pensions accounts for 0.4 percentage point of the high growth rate of social security expenditure in 2003, whereas during each of the three preceding years, that factor had contributed just 0.2 point. In 2002, the relatively steep rise in pension spending was due more to the fact that indexation exceeded infl ation by one percentage point.

As regards unemployment, the most signifi cant measures – intended to fi ght poverty – were already in force in 2001 and 2002, and had only a small additional impact in the year under review. In 2003, on the other hand, NEMO expenditure was augmented by 0.1 percentage point as a result of the new service voucher system.

Finally, introduction of the time-credit system at the beginning of 2002 also contributed to the sharp rise in primary expenditure. This new scheme is intended to progressively replace career breaks. It provides for more generous allowances and has been a great success, the average number of persons involved having risen from around 17,000 in 2002 to over 40,000 a year later. While this growth was partly offset by a fall in spending on career breaks, it contributed to the expansion of social security expenditure by 0.2 and 0.1 percentage point in 2002 and 2003 respectively.

In 2003, the primary expenditure of the federal govern-ment grew by 3.1 p.c. in real terms, after adjustment for the infl uence of non-recurrent factors. To an even greater extent than the year before, that growth is well above the average - very low indeed - for the past ten years.

As in 2002, the growth was due mainly to personnel policy reforms in the civil service and the police, and to new resources allocated to some priority areas such as development cooperation and justice. During the year under review, three additional factors contributed to the strong growth of federal expenditure, namely the signifi -cant increase in the contribution to the European budget based on gross national income, some social provisions, and the postponement of transfers to social security from 2002 to 2003.

4

5

6

7

8

4

5

6

7

8

2

3

4

5

2

3

4

5

0

20

40

60

80

100

0

20

40

60

80

100

3

4

5

6

7

8

3

4

5

6

7

8

1996 1997 1998 1999 2000 2001 2002 2003

1996 1997 1998 1999 2000 2001 2002 2003

1996 1997 1998 1999 2000 2001 2002 2003

1996 1997 1998 1999 2000 2001 2002 2003

CHART 56 INTEREST RATES ON THE PUBLIC DEBT

(Percentages)

Sources : NAI, FPS Finance, NBB.(1) Ratio between the interest charges during the current year and the debt at the

end of the previous year.(2) Gross Treasury debt, excluding Treasury certificates deposited with the IMF and

”Ageing Fund Treasury Bonds“.(3) Excluding the loans issued before 1 January 1999 in currencies other than the

Belgian franc and excluding variable-rate linear bonds, which are included in the ”miscellaneous“ category because their rate fluctuates like short-term rates.

(4) Average rate due on Treasury certificates.(5) Ratio between the interest charges on the long-term debt in euro and the average

monthly outstanding amount of the debt.(6) Average interest rate on public loans with a maturity of six years or more.

Three-month Treasury certificatesSix-month Treasury certificatesTwelve-month Treasury certificates

COMPOSITION OF THE TREASURY DEBT (2)

RATE ON THE LONG-TERM DEBT IN EURO (3)

Three-monthSix-monthTwelve-month

IMPLICIT INTEREST RATE (1) ON THE GENERAL

GOVERNMENT DEBT

INTEREST RATE ON TREASURY CERTIFICATES (4)

Debt initially issued in foreign currenciesMiscellaneous

(2)

Implicit interest rate (5) Market rate

(6)

Long-term debt in euro (2)

(3)

e

e

e

e

80

Interest charges of general government

Interest charges expressed as a percentage of GDP have declined steadily since their record level of 11.9 p. c in 1990. In 2003 they continued to fall at a rapid rate, by 0.5 percentage point of GDP as in the previous year, dropping to 5.6 p. of GDP. This decline is due to the debt reduction process which, after slowing sharply in 2001, regained momentum from 2002, and to the implicit interest rate which, after remaining more or less steady in 2000 and 2001, fell quite quickly thereafter.

As the bulk of the public debt rests with the Treasury and its composition has remained practically unchanged since 2000, the movement in the implicit rate is due almost exclusively to the movement in the rates on the various debt components. The 50 basis point reduction in the rate on the ECB’s main refi nancing operations at the end of 2002, and further reductions in that key rate in 2003 totalling 75 basis points, led to another fall in the implicit short-term rate, averaging around 100 basis points. The implicit rate on the long-term debt dropped by around 30 basis points, a fall equivalent to the average recorded in recent years : once again, the Treasury was able to obtain signifi cantly lower rates for refi nancing high- interest loans.

Overall balance of general government

The account of general government ended in 2003 with a surplus of 0.2 p.c. of GDP, having balanced in the previous year. Since interest charges declined sharply again in 2003, this virtual stabilisation of the overall balance was accompanied by a reduction in the primary surplus, which was down from 6.1 p.c. of GDP in 2002 to 5.8 p.c.

The movement in the overall balance of the general government budget is the outcome of developments which vary between sub-sectors. Thus, the federal government ended with a surplus of 0.3 p.c. of GDP in the year under review, after recording a defi cit of 0.3 p.c. of GDP in 2002. This marked improvement is due to reve-nue received in return for taking over Belgacom’s pension liabilities, and to a further decline in interest charges ; that decline is particularly benefi cial for the federal government as it has the largest debt. Leaving aside the Belgacom payment and other non-recurrent factors, such as the early payment of certain transfers to the BNRC, the federal government’s primary balance deteriorated by 1.2 p.c. of GDP.

The contribution made by the Member States to the EU budget in the form of the GNI resource is fairly volatile, being calculated as a residual fi gure in order to balance the budget. It therefore depends not only on the amount of budget expenditure in the year in question, but also on the movement in other sources of funding, essentially customs duties, agricultural levies and, fi nally, the VAT resource. Another factor of fl uctuation is the movement in the size of the GNI of the Member States relative to that of the EU. But the GNI resource is also affected if the previous year’s budget produced a surplus ; depending on its size, a surplus gives rise to a larger or smaller reduction in the GNI resource due for the ensuing year. In 2003, this was the most decisive factor : the Community budget surplus for 2002, and hence the amount of the adjustment in 2003, were considerably smaller than in the previous year, leaving a considerably larger gap to be fi lled by the GNI resource.

Federal government spending was also infl uenced by social measures, since additional resources totalling over 140 million euro were allocated to welfare benefi t recipi-ents in 2003. On the one hand, the subsistence allowance was replaced by entitlement to social integration, which consists of a larger allowance – the living allowance – combined with increased expenditure on encouraging reintegration into society and the labour force. The allow-ances paid to disabled persons were also increased.

Expansion in the volume of primary expenditure of the communities and regions was kept down to 1.7 p.c., partly owing to measures to control spending taken by some of them at the end of the year under review. That modest rise contrasts with the sustained growth recorded over the past ten years, and more especially in 2002 when it came to 5 p.c., or double the average for the period, owing to high expenditure by the Brussels Capital Region and the Flemish community. In Brussels, it was mainly due to investment expenditure on urban renewal and trans-port, and a very sizeable increase in the aid paid to the BITC. In the Flemish Community, the increase in spending had been more general, but two of the main factors were the strong growth of investment and the pay rises in edu-cation and the non-profi t sector.

The primary expenditure of local authorities also increased in real terms at a slower pace than in 2002, when it had been infl ated by the effects of the police reform and by the fact that the impact of the indexation of wages and benefi ts was relatively important, just as in the other general government subsectors.

81

PUBLIC FINANCES

TABLE 31 FINANCING REQUIREMENT (–) OR CAPACITY BY GENERAL GOVERNMENT SUB-SECTOR


Sources : NAI, NBB.(1) Including the capital transfer of 1.9 p.c. of GDP made by Belgacom in return for the government’s assumption of its pension liabilities. However, as indicated by table 32,

the impact of non-recurring transactions taken together totals only 1.5 p.c. of GDP.

1999 2000 2001 2002 2003 e

Primary balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 6.9 7.1 6.1 5.8 (1)

Federal government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 5.8 5.3 5.4 5.5 (1)

Social security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 0.6 0.7 0.3 –0.4

Communities and regions . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.5 1.0 0.1 0.3

Local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.1 0.2 0.5 0.5

Interest charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0 6.8 6.6 6.1 5.6

Financing requirement (–) or capacity . . . . . . . . . . . . . . . . . . . . –0.4 0.1 0.5 0.0 0.2 (1)

Federal government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.6 –0.5 –0.9 –0.3 0.3 (1)

Social security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 0.6 0.7 0.3 –0.4

Communities and regions . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.2 0.8 –0.2 0.1

Local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 –0.2 –0.1 0.2 0.2

Social security recorded a defi cit for the fi rst time since 1996, totalling around 0.4 p.c. of GDP. The sharp dete-rioration in this sector’s fi nances was due to the small rise in social security contributions combined with a substantial increase in spending. The latter is attributable to the strong expansion of health care spending, the cyclical increase in unemployment expenditure and the increase in certain social benefi ts.

The movement in the balance of the communities and regions is closely linked to the changes in the resources transferred to them under the Special Finance Act. The period following 1999, the so-called fi nal phase of the Finance Act, featured a high degree of volatility in these transfers. Up to 2001, the resources transferred under that law were provisionally determined according to the movement in infl ation and real GNI growth in the previous year ; this could give rise to substantial regularisations charged to the next year’s resources, particularly in the case of a turnaround in the cycle. Owing to this method of calculation, these resources increased sharply in 2001 before declining in 2002. As these erratic changes in revenues transferred to the communities and regions hampered the conduct of fi scal policy for those authorities and for the federal government, the Lambermont agree-ment attempted to produce a solution to the problem. From 2002 onwards, the movement in infl ation and GNI growth predicted for the current year in the Economic Budget were taken as the basis ; this minimised the adjustments aimed at regularising the discrepancies in these parameters

and moderated the fl uctuations. On 22 September 2003 the Committee for Consultation between the federal government and the governments of the communities and regions also decided that the GNI revisions made annually by the NAI would be totally disregarded in the

1997 1998 1999 2000 2001 2002 2003–4

–2

0

2

4

6

8

–4

–2

0

2

4

6

8

CHART 57 PERSONAL INCOME TAX AND VAT REVENUES TRANSFERRED TO THE COMMUNITIES AND REGIONS UNDER THE SPECIAL FINANCE ACT

(1)

(Percentage changes at constant prices compared to the previous year (2)

)

Sources : State revenue and resources budget, NBB.(1) Excluding the impact of regional taxes transferred.(2) Revenues deflated by the national consumer price index.

Including

additional resources made available under the Lambermont agreement

Excluding

82

calculation of the resources for the communities and regions, and that the reference parameter for the growth of GNI in any year would systematically correspond to that estimated by the NAI in March of the subsequent year. That approach will ensure that the revenues of the communities and regions are far less volatile in future.

The resources transferred to the communities and regions grew by 3.3 p.c. in real terms during the year under review. Apart from the application of the parameters relating to infl ation and real GNI growth, this increase was due to the fact that the resources transferred in 2002 included a regu-larisation intended to rectify an excess receipt in 2001, and to the granting of additional resources totalling 149 million euro to the communities under the Lambermont agree-ment. The corresponding increase in revenues, which exceeded the rise in spending, accounts for the improve-ment in the balance of the communities and regions, which was converted from a defi cit of 0.2 p.c. of GDP in 2002 into a small surplus of 0.1 p.c. of GDP.

Finally, the local authority surplus remained steady at 0.2 p.c. of GDP during the year under review, after an improvement to the balance in earlier years brought about by local tax increases and the contraction of invest-ment expenditure, usual after a municipal election.

Cyclically adjusted and structural budget balances

The primary balance and the overall balance of general government give only an imperfect indication of the effec-tive orientation of fi scal policy, as they are determined not only by that policy but also – and to a signifi cant extent – by the general economic situation, which is beyond the direct infl uence of the government. In order to assess the fi scal policy stance, it is therefore better to use indicators from which the infl uence of the economic cycle has been eliminated. For that purpose, the ESCB uses a harmonised method which, as explained in box 6, adjusts the actual budget balances to take account both of differences between the actual increase of activity and the trend growth rate, and non-trend fl uctuations in the composition of GDP.

The indicators constructed using this method show that, in 2003, the persistent weakness of economic activity imposed just as heavy a burden on the budget as it had in 2002. While activity expanded slightly faster in the year under review than in 2001 and 2002, it remained well below its trend rate for the third consecutive year. In contrast to the two preceding years, however, the situa-tion was not attenuated by changes in the composition of GDP which were favourable to public fi nances. In all,

TABLE 32 CYCLICALLY ADJUSTED (1) AND STRUCTURAL BUDGET BALANCES


Sources : NAI, NBB.(1) According to the methodology described in Bouthevillain C., Cour-Thimann P., van den Dool G., Hernández de Cos P., Langenus G., Mohr M., Momigliano S. and Tujula M.

(2001), Cyclically adjusted budget balances : an alternative approach, ECB Working Paper Series, N° 77 (September).(2) I.e. the impact of non-recurrent factors on revenue or on primary expenditure.

Primary balance Overall balance

2001 2002 2003 e 2001 2002 2003 e

Level observed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 6.1 5.8 0.5 0.0 0.2

Change observed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.0 –0.3 –0.5 0.1

Cyclical change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.4 –0.4 –0.4 –0.4

GDP growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.6 –0.4 –0.6 –0.4

Composition effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.0 0.3 0.0

Cyclically adjusted change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.6 0.1 –0.1 0.6

Cyclically adjusted level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 6.1 6.2 0.1 0.0 0.6

Impact of non-recurrent factors (2) . . . . . . . . . . . . . . . . . . . . . 0.4 0.2 1.5 0.4 0.2 1.5

Structural level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 5.8 4.7 –0.3 –0.2 –0.9

Structural change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.4 –1.1 0.1 –0.7

83

PUBLIC FINANCES

Box 6 – Cyclically adjusted budget balances : calculation method used by the ESCB (1)

In the euro area, in the economic analysis of the monetary policy strategy, the assessment of fi scal policy is one of the elements on which the Governing Council bases its decisions. It is therefore vital for the Eurosystem to have reliable ways of measuring the cyclically adjusted balance of general government. A fairly advanced method of cyclical adjustment was therefore developed by the ESCB for the harmonised assessment of the fi scal policy of the EU Member States. Cyclical adjustment is carried out in two stages.

First, in contrast to the methods of calculation normally used by the EC, the IMF or the OECD, the cyclical situation is not viewed on the basis of just the movement in GDP, but is defi ned more broadly. It is necessary to adopt a more detailed approach since the budget position depends not only on economic growth itself, but also on its composition. The reason is that a number of revenue and expenditure categories may be taxed in different ways. Thus, earned incomes are generally taxed at a higher rate than business profi ts, and exports and business investment are not normally subject to indirect taxes, whereas indirect taxation does apply to private consumption and investment in housing. Economic growth therefore has a more favourable impact on the general government accounts the more it is supported by a rise in earned incomes, private consumption and investment in housing.

In practice, four main revenue categories and one expenditure category in the general government budget are taken into account, their sensitivity to cyclical variations being clearly established. These are direct taxes paid by households, social security contributions, direct taxes paid by companies, indirect taxes, and expenditure relating to unemployment. For each of these categories, a macroeconomic variable which determines their movement more directly than GDP has been adopted : earned incomes in the case of social security contributions and direct taxes paid by households, the sum of private consumption and investment in housing in the case of indirect taxes, gross primary income of enterprises in the case of direct taxes paid by companies, and the number of unemployed persons in the case of expenditure relating to unemployment. These variables are expressed in real terms. To analyse the link between direct taxes paid by households and earned incomes, a distinction was also made between employment and the average earned income. In view of the progressive nature of personal income tax, these two components may in fact exert a different infl uence on direct taxes paid by households. Moreover, only employment and average earned income in the private sector are considered, as the cyclical adjustment is intended to adjust the actual budget outcomes for cyclical variations over which the government has little if any infl uence, and that is not the case for the earned incomes of public sector employees.

Overall, the method used by the ESCB therefore defi nes the cyclical situation by means of fi ve macroeconomic variables, rather than just GDP. To adjust the movement in these variables for the infl uence of cyclical fl uctuations, the trend is identifi ed via a statistical fi lter, the Hodrick-Prescott fi lter. This fi lter calculates a non-linear trend in which the trend value can be described as a centred and weighted moving average of the values observed : the weight attached to those observations decreases the farther away they are in time. For smoothing the temporal series, a compromise is sought in order to keep as close as possible to the observed values while avoiding excessively abrupt variations in the trend growth. The degree to which this last objective counterbalances the fi rst is determined by a smoothing parameter, as the trend growth is less unstable the higher the value accorded to it. The ESCB method differs in that respect from the method which the EC uses to identify the trend movement in GDP, by opting for a smoothing parameter which implies, in particular, that the major part of the fl uctuations over any period of eight years or less is included in the cyclical component, whereas in the EC method that period ranges from fi fteen to twenty years.

Choice of this method is largely normative and should be seen in the context of the European Stability & Growth Pact. A higher value smoothing parameter would have the disadvantage of underestimating deviations from the trend, in the sense that the deviations would include effects of very long economic cycles, which cannot be treated in the same way as cyclical fl uctuations. It could lead to the conclusion, during an abnormally long cycle, that a

!

84

country is respecting the medium-term objective under the Pact whereas in reality the underlying situation of its public fi nances has suffered a structural deterioration.

A second stage comprises an estimate of the effect on the general government accounts of the divergences found in relation to a normal economic situation, on the basis of the sensitivity of the main public revenue and expenditure categories to those of the fi ve macroeconomic variables adopted below which are relevant to their movement. The detailed values of the various elasticities used for Belgium are shown in the table below.

The impact of the business cycle on the general government account is determined by applying these various elasticities to the deviations observed for the different macroeconomic variables used in comparison with their trend and the corresponding budget sums. The balance fl uctuations associated with cyclical variations in revenues or expenditure are thus identifi ed and, depending on whether they relate to periods of strong or weak economic activity, their amount in terms of absolute value is subtracted from or added to the budget outcome recorded in order to arrive at the cyclically adjusted balance.

Finally, a distinction is made between the overall impact of the business cycle on the budget and the effects of changes in the composition of GDP. According to the assumptions adopted by the Bank, if the composition of GDP is unchanged, the Belgian general government budget balance deteriorates (improves) by 0.57 percentage point of GDP for each percentage point of negative (positive) output gap, i.e. deviation in trend GPD in relation to recorded GDP : the deviations found between the calculation of the impact of cyclical fl uctuations on the budget according to this simplifi ed approach and that taking account of changes in the composition of GDP correspond, in the ESCB method, to what are called composition effects in the adjustment of budget balances.

(1) The method used by the ESCB is discussed in more detail in the article Cyclically adjusted budget balances published in the Bank’s Economic Review dated August 2001, and in the article by Bouthevillain C., Cour-Thimann Ph., van den Dool G., Hernández de Cos P., Langenus G., Mohr M., Momigliano S. and Tujula M., Cyclically adjusted budget balances : an alternative approach, published in September 2001 in ECB Working Paper Series, n° 77.

BUDGET ELASTICITIES IN RELATION TO THE REFERENCE MACROECONOMIC VARIABLES

Source : NBB.

Budget category Reference variable Elasticity

Direct taxes paid by households . . . . . . . . . . . . . . . Private sector employment 1.00

Average earned income in the private sector 1.36

Social security contributions . . . . . . . . . . . . . . . . . . Private sector employment 1.00

Average earned income in the private sector 1.00

Direct taxes paid by companies . . . . . . . . . . . . . . . . Gross primary income of companies 0.72

Indirect taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Private consumption and investment in housing 0.97

Unemployment expenditure . . . . . . . . . . . . . . . . . . Number of persons unemployed 0.92

the adverse macroeconomic environment accounts for more than the whole of the decline in the primary surplus during the year, so that the cyclically adjusted primary sur-plus edged upwards, from 6.1 to 6.2 p.c. of GDP.

The cyclically adjusted overall balance improved during the year under review, helped mainly by the fall in interest charges, the balance achieved in 2002 being converted to a surplus. Nonetheless, it must be said that the method of cyclical adjustment used here – like almost all the variants applied – does not eliminate from the budget fi gures any

85

PUBLIC FINANCES

cyclical infl uences on interest rate levels and hence on interest charges. When the economy is slack, that may therefore slightly fl atter the movement in the cyclically adjusted budget balance as described in this chapter.

Cyclically adjusted balances should not be confused with structural balances from which are eliminated not only cyclical movements but also, as far as possible, all other non-recurring factors. In 2002 such factors had infl ated the budget balances by around 0.2 p.c. of GDP : the unfavourable impact of the non-recurring tax cut in the Flemish Region had in fact been largely offset by other factors, including the sale of federal government property, the increase in the amount of personal income tax deducted at source in relation to the amount of tax ultimately due, and an exceptional dividend from Belgacom. During the year under review, the favourable effect of non-recurring factors totalled 1.5 p.c. of GDP, essentially as a result of the large capital transfer by Belgacom which was only partly offset by the early pay-ment of certain transfers to the BNRC. The structural defi -cit of general government increased in 2003, expanding

TABLE 33 CONSOLIDATED GROSS DEBT OF GENERAL GOVERNMENT

(Percentages of GDP, unless otherwise stated)

Sources : NAI, NBB.(1) This balance is equal to the difference between the implicit interest rate on the debt and the rate of growth of nominal GDP, multiplied by the ratio between the debt at

the end of the previous year and the GDP of the period in question.(2) Percentages.(3) Mainly lending, equity investment, the impact of exchange differences and of issue and repurchase premiums, statistical discrepancies and, in 2001, the incorporation of

CREDIBE in the general government sector.(4) Including the Belgacom capital transfer of 1.9 p.c. of GDP, effected by Belgacom in return for the government’s assumption of its pension liabilities.

1993 Average1994-1998

1999 2000 2001 2002 2003 e Movementbetween 1993

and 2003 e

Level of the debt (end of period) . . . . . . . . . . . . . . 137.9 114.8 109.5 108.5 106.1 100.7

Change in the debt . . . . . . . . . . . . . . . . . . . . . . . . . –3.7 –4.7 –5.4 –0.9 –2.5 –5.4 –37.3

Endogenous change . . . . . . . . . . . . . . . . . . . . . . . . –2.0 –4.9 –5.8 –3.1 –2.7 –3.4 –29.7

Primary balance required to stabilise the debt (1) . . 3.5 1.7 1.1 4.0 3.4 2.3

Implicit interest rate on the debt (2) . . . . . . . . . 6.8 6.1 6.2 6.1 5.7 5.4

Growth of nominal GDP (2) . . . . . . . . . . . . . . . . 4.0 4.6 5.1 2.4 2.4 3.1

Actual primary balance . . . . . . . . . . . . . . . . . . . . 5.5 6.6 6.9 7.1 6.1 5.8 (4)

Change resulting from other factors . . . . . . . . . . . . –1.7 0.2 0.4 2.2 0.2 –2.0 –7.5

Transactions with the NBB (including capital gains on gold) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.7 0.0 0.0 0.0 –0.1 –0.1

Privatisation operations and other financial transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.5 –0.6 –0.1 0.0 0.0 –1.0

Net formation of financial assets outside the public sector . . . . . . . . . . . . . . . . . . . . . . . . . . –0.7 0.5 0.3 –0.3 –0.1 –1.3

Other (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.3 0.2 2.5 0.4 0.4

from 0.2 to 0.9 p.c. of GDP, whereas the structural primary surplus declined from 5.8 to 4.7 p.c. of GDP. The downward trend in the primary surplus refl ects an easing of the fi scal policy stance in recent years, due both to the various reductions in fi scal charges and to the substantial rise in primary expenditure.

Debt of general government

The consolidated gross debt contracted by 5.4 p.c. of GDP during the year under review to reach 100.7 p.c. of GDP. The Belgian government debt had peaked in 1993, when it was close on 138 p.c. of GDP. Since then, it has declined steadily, by an average of 3.7 percentage points per annum.

Almost fi ve-sixths of the contraction in the debt recorded between the end of 1993 and the end of the year under review can be attributed to the reverse “snowball” effect of the public debt, i.e. the maintenance of a primary surplus larger than that required simply to stabilise the public debt, taking account of nominal

86

Box 7 – The Ageing Fund

The Ageing Fund, established by the law of 5 September 2001(1), is intended to form reserves to cover the impact of the ageing population on pension expenditure. Its resources may come from fi nancing surpluses produced by the federal government or by social security, and from non-recurring, non-fi scal revenues. By thus establishing a more tangible link between a fi scal policy aimed at the creation of surpluses and the concomitant decline in the public debt and interest charges, on the one hand, and the fi nancing of the impact of population ageing on the other, the federal government is demonstrating its desire to strengthen the support for the public debt reduction policy. The Ageing Fund will be able to contribute towards fi nancing expenditure on pensions from 2010 onwards, provided that the overall general government debt is less than 60 p.c. of GDP.

In the national accounts, the Ageing Fund is classifi ed under the federal government, so that the transfer payments from the Treasury to the Fund, such as those made in 2003, are transactions internal to this sub-sector of general government, and therefore do not affect either its revenue or its expenditure, or its overall balance, nor do they affect general government as a whole. Furthermore, the law states that the fund must invest its reserves in securities issued by public authorities. In order to avoid infl uencing the market in the Treasury’s traditional fi nancing instruments, a special instrument called the “Ageing Fund Treasury Bond”, was created. The issue of these securities does not entail any increase in the consolidated gross debt, i.e. the liabilities minus the government securities held by the government itself, since the assets invested in these securities by the Fund – which forms an integral part of general government – are deducted from it.

The Ageing Fund is essentially an instrument of budget discipline as, apart from non-recurring, non-fi scal revenues, resources cannot be allocated to it on a structural basis except by the formation of budget surpluses. The establishment of the Ageing Fund is part of a broader raft of institutional measures designed to make adequate provision for the fi scal and social consequences of the ageing population, including in particular the creation of the Study Group on Ageing. The law of 5 September 2001 provides that this committee – which comes under the High Council of Finance – shall draw up a report by the end of April each year, examining the social and fi scal consequences of ageing. The “Public sector borrowing requirement” section of the High Council of Finance has to take account of the fi ndings of this report in its fi scal policy recommendations. The government uses the information from that report as the basis for producing an annual policy document on ageing, in which it sets out its policy strategy for coping with the ageing of the population.

(1) Law of 5 September 2001 guaranteeing a continuous reduction in the public debt and the creation of an Ageing Fund.

economic growth and the implicit interest rate on the debt. The rate of this endogenous debt contraction was particularly high from 1997 to 2000 when, under the combined effect of vigorous nominal economic growth and a large primary surplus, it averaged around 4.6 p.c. of GDP per annum. However, from 2001 this pace was curbed by the weak growth of nominal GDP. Although nominal economic growth accelerated slightly during the year under review, and although the implicit interest rate continued to fall, the level of the primary surplus declined, even taking account of the revenues relating to the assumption of Belgacom’s pension liabilities. Overall, the endogenous debt contraction came to 3.4 p.c. of GDP in 2003.

The residual fall in the debt recorded since 1993 is attribut-able to factors which do not infl uence the overall balance of public fi nances, such as transactions with the Bank (including the transfer of capital gains on gold), privatisa-tions, or the reduction in fi nancial assets held outside the general government sector. While these exogenous fac-tors made a substantial contribution towards reducing the public debt between 1995 and 1998, they subsequently slowed the debt contraction until 2001, owing to lend-ing, equity investments and, above all, the incorporation of CREDIBE in the general government sector in that year. In 2002, these exogenous factors had exerted a generally insignifi cant effect whereas, during the year under review, they amplifi ed the endogenous debt contraction, mainly

87

PUBLIC FINANCES

because of the effect of the repayment by the regional social housing companies of a large part of their debt to SHLAF, the sale of the mortgage loan portfolio managed by CREDIBE and, to a lesser extent, the payment of some 200 million euro by the Bank to the Treasury, in return for Belgian franc banknotes not exchanged for euro.

The “Ageing Fund” resources increased during the year under review, the main factor being the allocation to that fund of money received by the Treasury from the sale of the CREDIBE portfolio and the payment made by the Bank in return for Belgian franc banknotes not exchanged for euro. At the end of 2003, the assets held by the Ageing Fund, including capitalised interest, totalled around 4.3 billion euro in “Ageing Fund Treasury Bonds”, which are special securities issued by the Treasury. The issue of these securities did not entail any increase in the con-solidated gross debt, since the assets of the Ageing Fund – which, as explained in box 7, forms part of the general government – are deducted from it. At the beginning of 2004, the Fund also received from the Treasury the revenues which Belgacom had paid to it in respect of divi-dends and the assumption of its pension liabilities at the end of the year under review.

In the 1980s, the public debt in Belgium had grown, just as it did in the euro area, but at a faster rate. After the peak reached in 1993, the trend was reversed in Belgium, while the debt ratio remained more or less steady overall

in the euro area. Thus, the gap in relation to the euro area, which was still over 70 p.c. of GDP in 1993, has more than halved over the past ten years.

6.2 Long-term dynamics of health care expenditure

Total public spending on health care represented 6.2 p.c. of GDP in 2003. In the past, this expenditure, which came to just 4.2 p.c. of GDP in 1980, has grown faster than GDP. In the past two decades, its real annual average growth rate came to 3.5 p.c., whereas economic activity expanded by just 1.9 p.c. In 1980, health care spending totalled 8.5 p.c. of the primary expenditure of general government, whereas the fi gure for 2003 was 13.5 p.c.

The growth of public health care expenditure at constant prices is highly volatile : it has been zero, or even nega-tive, in some years but very rapid in others. By calculating a moving average it is possible to attenuate the annual fl uctuations, which are generally due to shifts, account-ing delays or short-term measures. This shows that, in the early 1980s, the real growth of this expenditure was well below the trend rate. A sustained acceleration then occurred until the early 1990s, after which growth dropped back below the trend rate until the end of that

0

30

60

90

120

150

0

30

60

90

120

150

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

CHART 58 PUBLIC DEBT IN BELGIUM AND IN THE EURO AREA


Sources : EC, NBB.

Belgium

Euro area

+41 p.c. of GDP

+30 p.c. of GDP

+71 p.c. of GDP

2003

e

–3

–2

–1

0

1

2

3

4

5

6

7

8

9

1011

–3

–2

–1

0

1

2

3

4

5

6

7

8

9

10

11

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

CHART 59 HEALTH CARE EXPENDITURE (1)

(Percentage changes at constant prices compared to the previous year (2)

)

Sources : NAI, NBB.(1) Public spending on health care, excluding sickness and invalidity benefits, benefits

for the disabled, transfers to institutions caring for the disabled, and spending on long-term care insurance.

(2) Expenditure deflated by the national consumer price index.

Moving average (centred over 3 years)

Average 1981-2003 e

2003

e

88

decade. In recent years, however, the average growth rate has once again exceeded the trend rate.

In the case of the NSDII expenditure, which forms the bulk of public spending on health care, the strongest growth over the past ten years was recorded for expenditure in the elderly persons care sector, where the annual real growth came to 9.6 p.c. That sustained growth is due to a combination of several factors, such as the increase in the number of elderly persons in residential and nurs-ing homes, caused not only by the rise in the proportion of elderly persons in the population but also by the fact that fewer of them can be cared for by their families ; there has also been an increase in the percentage of the elderly suffering severe disability. Pay rises, particularly those resulting from the social agreements concluded at the beginning of the 1990s, have also contributed to the surge in expenditure.

Next, it is nursing care, mainly consisting of home care, which has expanded the fastest. The ageing of the popu-lation and the accompanying increase in the incidence of chronic ailments are also major determinants of this expenditure.

0 10 12 14

4.9

4.3

16.6

100.0

26.2

3.5

3.2

36.7

7.9

5.0

17.6

100.0

23.8

3.1

2.6

31.1

2 4 6 8

CHART 60 MAIN CATEGORIES OF HEALTH CARE EXPENDITURE

(1)

(Annual average percentage changes from 1993 to 2003, at constant prices

(2), unless otherwise stated)

Sources : NSDII, FPS Social Security.(1) Expenditure charged to the NSDII : scheme for employees and scheme for

self-employed persons.(2) Expenditure deflated by the national consumer price index.

p.m.Percentage

share, 2003 e

p.m.Percentage share, 1993

Total

Dentists

Care of the elderly

Hospitals (daily cost of hospitalisation)

Doctors and clinical biology

Pharmaceutical products

Nursing care

Physiotherapists

Real GDP growth

TABLE 34 DETERMINANTS OF THE RISE IN PUBLIC HEALTH CARE EXPENDITURE

(Annual averages, percentage changes at constant prices, unless otherwise stated (1))

Sources : Alliance nationale des Mutualités chrétiennes, NAI, NSI, NBB.(1) Expenditure deflated by the national consumer price index.(2) That effect is due to a mechanical calculation in which the annual changes in the population structure are weighted by a cost profile – kept constant – per 5-year age band.(3) These correspond to the ratios observed in the past between the nominal growth of public health care expenditure – excluding the impact of demographics – and the growth

of nominal GDP per capita over different periods : 1.20 from 1993 to 2003, 1.25 from 1981 to 2003 and 1.34 from 1971 to 2003.(4) This figure differs from the one shown in table 30 for real growth of health care from 1993 to 2003 since it covers the whole of general government and not only social

security.(5) Assumption adopted in the 2003 Report by the Study Group on Ageing.(6) Percentage points of GDP.

1993-2003 e 2004-2030

Demographic effects

Population growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.2

Ageing of the population (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.7

Assumptions relating to the ratio between expenditure growth and activity growth (3)

1.20 1.25 1.34

Non-demographic effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 2.4 2.6 2.9

Total growth of expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 (4) 3.3 3.5 3.8

p.m. Growth of real GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 1.9 (5) 1.9 (5) 1.9 (5)

Expenditure as p.c. of GDP at end of period . . . . . . . . . . . . . . 6.2 8.9 9.3 10.1

p.m. Idem, change over the period (6) . . . . . . . . . . . . . . . . . . . . +0.9 +2.7 +3.1 +3.9

89

PUBLIC FINANCES

As regards the other segments, spending on pharma-ceutical products increased at 3.9 p.c. per annum in real terms. The average annual real growth of expenditure on hospitals, which stood at 2.8 p.c., was lower than the rise in total expenditure by the NSDII. Expenditure on doctors and on clinical biology, which represents about one-third of total spending, showed a volume increase averaging just 1.2 p.c. per annum, well below the growth of GDP.

The demographic trend is a key factor determining the rise in health care expenditure. As in other countries, there is a clear correlation between age and average expenditure per person. Medical consumption is particu-larly high for the very elderly : while health expenditure in respect of a person aged 70 is 3.5 times the fi gure for a person aged 35, it is no less than 12 times higher for a person aged 90.

Demographic factors account for 0.8 percentage point of the real growth of public expenditure on health care, which averaged 3 p.c. per annum from 1993 to 2003. The population grew by an average of 0.3 p.c. per annum, whereas the effect of ageing, determined by changes in the population structure and average expenditure per age category, came to 0.5 percentage point.

0

3000

6000

9000

12000

0

3000

6000

9000

12000

0 10 20 30 40 50 60 70 80 90

CHART 61 HEALTH CARE EXPENDITURE IN 2000, BY AGE (1)

(Euros)

Source : Alliance nationale des Mutualités chrétiennes.(1) Expenditure charged to the NSDII : scheme for employees and scheme for

self-employed persons.

Age

100

and

over

In the years ahead, the ageing of the population will con-tinue to be a key element in the growth of expenditure : its impact on the annual real growth of expenditure is esti-mated at 0.7 percentage point. On the other hand, the population will expand at a slightly slower rate, namely 0.2 percentage point.

From 1993 to the year under review, non-demographic factors caused real growth of expenditure averaging 2.2 p.c. per annum. They comprise a host of factors, such as medical and technological developments, the tendency for costs to rise faster in the health care sector, which is rather labour-intensive, changes in the behaviour of demand (due partly to the increased supply of health care and the higher standard of living), and the effects of various measures aimed at improving the accessibility of health care. These factors cause expenditure to rise, par-ticularly for the oldest population group, because those are the people requiring more care as they suffer more frequent health problems.

Predicting the movement in these non-demographic fac-tors is a tricky exercise requiring in-depth analysis. By way of illustration, the nominal growth of public health care expenditure in the past, excluding the effect of demo-graphics, was related to the growth of nominal GDP per capita. The ratio thus obtained varies greatly from

–1

0

1

2

3

4

–1

0

1

2

3

4

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

CHART 62 RATIO BETWEEN THE GROWTH OF PUBLIC HEALTH CARE EXPENDITURE AND THE GROWTH OF GDP

(1)

Sources : NAI, NSI, NBB.(1) Nominal growth of public health care expenditure (excluding the impact of

demographics) divided by the growth of nominal GDP per capita.

2003

e

Average 1971-2003 e : 1.34

Average 1993-2003 e : 1.20

Average 1981-2003 e : 1.25

90

one period to another : it came to 1.20 for the past ten years, 1.25 for the past two decades and actually reached 1.34 for the period from 1971 to 2003. Although this last fi gure may not be representative of the future long-term trend, it must be noted that the target set in the government agreement of July 2003, namely an annual real increase of 4.5 p.c. from 2004 to 2007, implies a very high ratio between expenditure growth and GDP growth. Assuming that activity expands by 2.5 p.c. per annum, and infl ation is 1.5 p.c., that ratio comes to precisely 1.34, excluding the impact of demographics. Assuming that the volume of GDP grows at 1.9 p.c. per annum, the average rate recorded over the past two decades, the ratio actually comes to 1.59.

On the basis of the predicted trend in the population and real GDP growth, as estimated for the period 2004-2030 by the Study Group on Ageing, the percentage of GDP represented by health care expenditure can be estimated to increase by a fi gure ranging from 2.7 to 3.9 percentage points between 2003 and 2030, depending on whether the ratio is taken as 1.20 or 1.34. This extrapolation exer-cise, although highly simplifi ed, shows the need to control health care expenditure in order to safeguard the sustain-ability of public fi nances, especially as pension expendi-ture will also rise signifi cantly over the same period.

91

FINANCING BALANCE OF THE ECONOMY AND CURRENTTRANSACTIONS ON THE BALANCE OF PAYMENTS

The accounts presented in this chapter represent a summary of all the resources – disposable income and net capital transfers received – of the various economic sectors, and of their expenditure on consumption and investment. The balance of these accounts, which are drawn up on the basis of the national accounts, represents the fi nancing capacity or requirement of each sector : a positive balance gives rise to an increase in net fi nancial assets, while a negative balance needs to be fi nanced by a reduction in assets or an increase in liabilities vis-à-vis the other sectors. Taken overall at the level of the whole economy, the fi nancing balance corresponds to the net lending granted or contracted in relation to the rest of the world; it may also be deduced from the balance of payments data.

The fi nancing capacity of individuals stood at 4 p.c. of GDP in the year under review, against 4.7 p.c. in 2002. The reason for this decline lies in the contraction of individual savings, discussed in the chapter on output and expenditure in Belgium, since their investment expenditure, mainly on housing, and their net capital transfers remained stable in proportion to GDP.

Companies recorded a fi nancing requirement of 0.8 p.c. of GDP, whereas they had shown a fi nancing capacity of 0.2 p.c. the previous year. This deterioration occurred despite a rise in their disposable income, up from 12 p.c. of GDP in 2002 to 12.4 p.c. in the year under review, which was generated by the increase of their gross operating surplus outstripping the rise in their net fi nancial charges. In addition, the gross capital formation by enterprises was steady at 12.4 p.c. of GDP. It is therefore the substantial movement in net capital transfers that explains the deterioration in the fi nancing balance of companies

7. Financing balance of the economy and current transactions on the balance of payments

in 2003. In contrast to the usual situation in which companies receive capital appropriations, e.g. in the form of investment grants provided by the government, they actually effected net transfers of capital to other sectors, as a result of the 5 billion euro payment made to the State by Belgacom in respect of the transfer of its pension liabilities.

Government transactions, discussed in detail in the chapter on public fi nances, produced a small net surplus in 2003, after ending in balance the previous year.

Overall, following a very steep rise to 4.9 p.c. in 2002, the fi nancing of the rest of the world by all the domestic sec-tors contracted during the year under review to 3.3 p.c. of GDP. Despite this decline, the fi nancing capacity of the economy expressed as a percentage of GDP remained among the highest in the euro area. The main reason for its large size is the high level of national savings – particularly pronounced in the 1990s – but another factor is the level of gross capital formation, which has been slightly below the European average for several years owing to the relative weakness of public investment.

The decline in net lending to the rest of the world, which came to 1.6 percentage points of GDP when calculated in accordance with the national accounts, can also be found in the fi gures based on the balance of payments data. Indeed, the two information sources generally lead to a broadly similar picture for the annual movement in net lending to the rest of the world expressed as a percentage of GDP. However, owing to methodological differences, the level of net lending to the rest of the world is not always identical. Thus, according to the balance of

92

payments fi gures, net lending declined from 5.1 p.c. of GDP in 2002 to 3.5 p.c. in 2003. In nominal terms, net lending to the rest of the world declined by 4 billion euro to 9.3 billion.

Net lending to the rest of the world is determined mainly by the balance of current transactions. Since 1995, that balance has hovered around an average of about 11 billion euro. The balance of goods and services trans-actions, which is its main component, has also fl uctuated

without manifesting any clear trend over the same period, despite fairly marked movements in some years. In con-trast, current transfers have produced an ever-growing defi cit. As regards factor incomes, their structural surplus has also tended to expand, at least until 2002.

The relative stability of the balance of goods and services transactions, seen in both goods and services, neverthe-less masks some notable developments. Thus, trade in services has steadily gained in importance : the share of services in Belgium’s international trade increased from 16.1 p.c. in 1995 to 17.6 p.c. in 2003. This expansion was generated mainly by the development of “other services”, where the strongest growth has occurred in international merchanting and business-related services (advertising services, market research and opinion polls, communication services, legal services, accountancy, management consultancy and public relations services, and computer-related services), and to a lesser extent by the rise in expenditure on travel. Conversely, the share of transport transactions remained steady until 2001, before contracting, mainly as a result of the slower pace of inter-national trade in goods, the bankruptcy of Belgian airlines and the growing market share of low cost airlines.

1991

1993

1995

1997

1999

2001

2003

19

20

21

22

23

24

25

26

27

19

20

21

22

23

24

25

26

27

1991

1993

1995

1997

1999

2001

2003

17

18

19

20

21

22

23

24

25

17

18

19

20

21

22

23

24

25

1991

1993

1995

1997

1999

2001

2003

–2

–1

0

1

2

3

4

5

6

–2

–1

0

1

2

3

4

5

6

CHART 63 GROSS SAVINGS, GROSS CAPITAL FORMATION AND FINANCING BALANCE OF THE DOMESTIC SECTORS


Sources : EC, NAI, NBB.(1) Excluding Luxembourg.

GROSS CAPITAL FORMATION

FINANCING BALANCE (1)

GROSS SAVINGS (1)

Belgium

Euro area

e

e

e

0

2

4

6

8

10

12

14

16

18

20

0

10

20

30

40

50

60

70

80

90

1995

1997

1999

2001

2003

(2)

CHART 64 SHARE OF SERVICES IN BELGIAN TRADE

(Percentages of total flows of goods and services (1), unless otherwise stated)

Sources : NAI, NBB.(1) Average of exports and imports.(2) Based on the figures available for the first nine months of the year.

Other services

Travel

Transport

(left-hand scale)

Flows of goods and services(percentages of GDP) (right-hand scale)

93


Transactions relating to travel produce a structurally negative balance, since the number of tourists travelling from Belgium to other countries exceeds the number coming to Belgium from abroad. In contrast, transport usually produces a positive balance owing to Belgium’s central geographical location and the importance of logistical activities. Among the other services, some are structurally in defi cit : for example, royalties and licences are affected in particular by the acquisition of rights to the use of patents or trade marks for pharmaceutical products, while personal and cultural services mainly cover the distribution or broadcasting costs and rights relating to cinema fi lms or radio and television programmes. In contrast, the accounts of public services ended in surplus, mainly because of the EU payment made for the collection of customs duties. IT, information and communication services generate more revenue than expenditure for Belgium, while the positive balance in construction is due

to major projects carried out abroad by fi rms operating in the dredging and energy sectors. The other services which generate a surplus for Belgium include interna-tional merchanting, research & development, consultancy and, above all, business-related services, in the last case owing to the large number of Belgium-based subsidiaries of foreign companies which receive fi nancial contribu-tions from their group towards their operating costs. Finally, insurance transactions and fi nancial services are in balance overall.

While the movement in the balance of current transactions is usually determined largely by movements in the result on trade in goods and services, the reduction in the current surplus in 2003 is also attributable to the decline in the surplus on factor incomes and the rise in the defi cit on current transfers.

TABLE 35 FINANCING REQUIREMENT (–) OR CAPACITY BY MAIN SECTOR


Sources : NAI, NBB.(1) Including changes in the net equity of individuals in pension funds.(2) Including net acquisitions of non-produced non-financial assets. These include, for example, land, patents and goodwill.(3) Net amounts, i.e. the difference between incomes or transfers received from other sectors and those paid to other sectors.(4) Including the negative value of the gross operating surplus of financial intermediation services indirectly measured (FISIM).(5) Including the capital transfer of 1.9 p.c. of GDP, made by Belgacom in return for the government’s assumption of its pension liabilities.

1999 2000 2001 2002 2003 e

Individuals

1. Gross disposable income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . 63.7 63.3 64.6 65.0 64.6

2. Final consumption expenditure . . . . . . . . . . . . . . . . . . . . . . . 53.8 54.1 54.6 54.4 54.7

3. Gross savings (1 – 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9 9.2 10.0 10.6 9.9

4. Gross capital formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 6.1 5.8 5.7 5.7

5. Capital transfers (2) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 –0.1 –0.3 –0.2 –0.2

6. Financing capacity (3 – 4 + 5) . . . . . . . . . . . . . . . . . . . . . . . 3.9 3.1 3.9 4.7 4.0

Companies

1. Gross disposable income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 13.8 12.2 12.0 12.4

Gross operating surplus (4) . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 19.3 18.3 17.5 18.4

Income from movable property (3) . . . . . . . . . . . . . . . . . . . –1.3 –2.2 –2.8 –2.4 –2.9

Current transfers (1) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . –3.4 –3.3 –3.3 –3.1 –3.2

2. Gross capital formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.8 13.8 13.1 12.4 12.4

3. Capital transfers (2) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 0.8 0.4 0.6 –0.9 (5)

4. Financing requirement (–) or capacity (1 – 2 + 3) . . . . . . . . 2.0 0.7 –0.5 0.2 –0.8 (5)

Government

Financing requirement (–) or capacity . . . . . . . . . . . . . . . . . . . . –0.4 0.1 0.5 0.0 0.2 (5)

All domestic sectors

Financing capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 3.9 3.9 4.9 3.3

94

The surplus on trade in goods diminished in the year under review from 9.3 to 8.3 billion euro. The whole of that fall is due to the deterioration in the import/export coverage rate by volume, since the terms of trade contin-ued to improve.

After a marked deterioration in 1999 and 2000 the terms of trade in goods improved by 1 p.c. in 2002, and by a further 0.9 p.c. in the year under review. The appreciation of the euro caused import prices to fall by more than export prices, since price adjustments by national producers only partially and gradually neutral-ised the resulting loss of competitiveness. This effect was greater than the negative impact on the terms of trade of the rise in international oil prices during the fi rst quarter, triggered by the geopolitical tensions, and the rise in non-energy commodity prices which accompanied the revival of global activity in the second half of the year. The volume coverage of imports by exports deteriorated by 1.6 p.c. in 2003, in a context of strengthening international trade in the course of year : the expansion of the volume of goods exported in

fact lagged behind that of imports, at 2.6 p.c. against 4.3 p.c. Imports were also bolstered by the revival in domestic demand. Moreover, owing to the price effects mentioned in the chapter on output and expenditure in Belgium, the appreciation of the euro also contributed to the decline in the coverage rate by curbing exports and stimulating imports.

In 2003, the surplus in services declined by 0.2 billion euro to 1.8 billion, as the contraction in revenues exceeded the fall in expenditure for services as a whole. On the basis of the available statistics for the fi rst nine months of the year, it seems that the sluggishness of international trade at the beginning of the year depressed freight transport, particularly shipping, for the third consecutive year. The surplus in intra-group services also declined. Conversely, net revenues from IT services, advertising, market research and opinion polls, services of architects and engineers, and tele-communications increased in the year under review. Finally, the deterioration in the result on passenger transport by air was more or less halted so that the contribution of that activity to the change in the current balance was neutral, after

TABLE 36 NET LENDING TO THE REST OF THE WORLD ACCORDING TO THE BALANCE OF PAYMENTS

(Balances, billions of euros, unless otherwise stated)

Sources : NAI, NBB.

First nine months

1999 2000 2001 2002 2003 e 2002 2003

1. Current account . . . . . . . . . . . . . . . . 12.1 9.8 9.7 14.0 10.1 10.9 6.3

Goods and services . . . . . . . . . . . . 10.2 7.5 8.2 11.4 10.1 9.5 7.0

Goods . . . . . . . . . . . . . . . . . . . . 8.9 5.3 6.2 9.3 8.3 8.4 6.3

Services . . . . . . . . . . . . . . . . . . . 1.3 2.3 1.9 2.0 1.8 1.1 0.7

Transport . . . . . . . . . . . . . . . . 2.1 2.1 1.7 0.9 n. 0.8 0.4

Travel . . . . . . . . . . . . . . . . . . . –3.1 –3.1 –3.2 –3.6 n. –3.2 –3.0

Other services . . . . . . . . . . . . 2.3 3.2 3.5 4.7 n. 3.5 3.3

Factor incomes . . . . . . . . . . . . . . . 6.2 6.4 5.9 7.3 5.9 5.3 4.2

Earned incomes . . . . . . . . . . . . . 3.0 3.0 3.1 3.3 n. 2.4 2.4

Incomes from direct and portfolio investment . . . . 3.3 3.4 2.8 4.0 n. 2.9 1.8

Current transfers . . . . . . . . . . . . . . –4.3 –4.2 –4.3 –4.6 –6.0 –3.8 –4.9

Transfers to general government –3.2 –3.3 –3.4 –3.7 n. –3.1 –3.7

Transfers to other sectors . . . . . –1.2 –0.9 –1.0 –0.9 n. –0.7 –1.2

2. Capital account . . . . . . . . . . . . . . . . . –0.1 –0.1 –0.3 –0.7 –0.8 –0.5 –0.8

3. Net lending to the rest of the world (1 + 2) . . . . . . . . . . . . . . . . . . 12.1 9.6 9.4 13.3 9.3 10.4 5.5

p.m. Percentages of GDP . . . . . . . . . 5.1 3.9 3.7 5.1 3.5 5.4 2.8

p.m. Idem, according to the national accounts . . . . . . . . . . . . . . . . . . 5.4 3.9 3.9 4.9 3.3 n. n.

95


The defi cit on current transfers rose sharply in 2003, up from 4.6 to 6 billion euro. At the same time, public and private transfers both depressed the current account bal-ance in the fi rst nine months of the year. In the former case, the increase is due to a fall in the balance of taxes, customs duties and fi nes – in contrast to previous years, the Belgium-Luxembourg agreement on the allocation of excise duties gave rise to a payment in favour of Luxembourg in 2003, following an adjustment relating to the past – and a marked increase in the Belgian government’s total con-tribution to the EU budget. In addition, development aid was stepped up in the year under review, as were Belgium’s contributions to other international institutions. The defi cit on net current transfers paid by the private sectors to the rest of the world increased from 0.7 to 1.2 billion euro between the fi rst nine months of 2002 and 2003. This deterioration, more pronounced than in the past, is partly due to the rise in transfers made in respect of insurance.

The decline in the surplus on current transactions was augmented by a signifi cant defi cit, for the third year in a row, on capital transactions, while that account is generally close to balance. In the two preceding years, a negative balance had been recorded owing to exceptional transactions between companies in the fi nancial sector and to the fact that, in 2002, the Ducroire/Delcredere wrote off some trade liabilities of defaulting foreign debt-ors. In 2003, this agency once again relinquished some foreign receivables, and the amounts involved were larger than the previous year, so that the capital account ended with a defi cit of 0.8 billion euro.

TABLE 37 TRANSACTIONS IN GOODS WITH THE REST OF THE WORLD (1)


Sources : NAI, NBB.(1) According to the national accounts statistics.

1999 2000 2001 2002 2003 e

Value

Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 18.2 2.1 0.0 1.7

Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 21.9 1.6 –0.9 2.4

Volume

Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 7.4 0.4 1.5 2.6

Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 8.3 –0.1 1.5 4.3

Volume coverage rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 –0.8 0.5 0.0 –1.6

Price

Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.3 10.0 1.8 –1.4 –0.9

Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 12.6 1.8 –2.4 –1.8

Terms of trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –1.1 –2.3 0.0 1.0 0.9

being decidedly negative in 2002. The defi cit in travel-related services declined slightly in 2003.

The surplus in net factor incomes received by Belgium from the rest of the world shrank to 5.9 billion euro, against 7.3 billion in 2002, owing to the decline in incomes from portfolio and direct investment. Dividend incomes were down sharply following a small contraction in revenues and a marked rise in expenditure under this heading. That divergence in movement refl ects both the fact that the increase in dividends in relation to share prices on the Belgian stock market outpaced the rise on the main foreign stock markets where Belgian residents have invested their capital, and the fact that the value of the foreign assets held by Belgian residents declined more sharply than the value of assets held by non-residents in Belgium. The fall in dividends was partly offset by a rise in net interest incomes received from the rest of the world. In the case of both divi-dends and interest, the appreciation of the euro depressed the incomes received on portfolio investments denomi-nated in other currencies. Earned incomes, which structur-ally produce a net surplus since the number of residents working abroad and in the international institutions based in Belgium exceeds the number of non-residents working in Belgium, did not show any signifi cant change in the fi rst nine months of the year under review.

97

FINANCIAL ACCOUNTS AND FINANCIAL MARKETS

8. Financial accounts and financial markets

TABLE 38 FINANCIAL ASSETS AND LIABILITIES BY SECTOR

(Outstanding amount at the end of 2002, billions of euros)

Source : NBB.(1) Financial institutions comprise the NBB, credit institutions and institutional investors. These institutions are treated as pure financial intermediaries : by construction, the total

of their financial assets is equal to that of their financial liabilities.(2) Only shares and fixed-income securities are recorded as intrasectoral assets of non-financial companies.

Financial assets of

Individuals Non-financialcorporations

Generalgovernment

Financialinstitutions (1)

Rest of the world Total financial liabilities

Financial liabilities of

Individuals . . . . . . . . . . . . . . . . . – – 9.1 100.3 – 109.4

Non-financial corporations . . . . . 73.9 246.5 (2) 7.7 134.1 253.2 715.3

General government . . . . . . . . . 16.9 8.7 20.9 145.4 116.7 308.6

Financial institutions (1) . . . . . . . . 411.3 87.2 14.0 210.0 389.9 1,112.4

Rest of the world . . . . . . . . . . . 164.9 172.3 1.1 522.6 – 860.8

Total financial assets . . . . . . . . . 667.0 514.7 52.7 1,112.4 759.7 3,106.5

Net financial assets . . . . . . . . . . 557.6 –200.6 –255.9 – –101.1

8.1 Financing structure and investments in the Belgian economy

Individuals, who possessed net fi nancial assets of around 558 billion euro at the end of 2002, constitute the Belgian economy’s only creditor sector; it fi nances, directly or indi-rectly, the other two resident non-fi nancial sectors and the rest of the world. On this same date, general government, whose net debt amounted to some 256 billion, was again the largest resident debtor sector, ahead of non-fi nancial corporations. The net fi nancial liabilities of the latter were slightly over 200 billion euro, but they came to only about 33 billion if shares and other capital participating interests were excluded from them.

At the end of 2002, nearly two-thirds of the fi nancial assets of individuals were held with Belgian fi nancial insti-tutions and a quarter abroad, while the direct fi nancing of enterprises represented only a tenth of these assets. As far as enterprises are concerned, fi nancing by – mainly unlisted – shares, and dependence on the rest of the world, via shares and loans between associated undertak-ings, are still basic characteristics. Lastly, while the fi nanc-ing of general government was provided mainly through fi nancial institutions in Belgium, since the start of the third stage of EMU it has also been based on greater recourse to the rest of the world : thus, by the end of 2002, the share of public debt held abroad had virtually doubled compared to the end of 1998, reaching around 40 p.c.

98

TABLE 39 STRUCTURE OF THE FINANCIAL ASSETS AND LIABILITIES OF RESIDENT NON-FINANCIAL SECTORS

(Billions of euros)

Source : NBB.(1) Excluding units of UCIs.

Individuals Non-financial corporations General government

Outstandingamount at the end of 2002

Flows of the first nine

months of 2003



months of 2003



months of 2003

Financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . 667.0 16.7 514.7 –0.6 52.7 –2.5

Notes, coins and deposits . . . . . . . . . . . . . . . . 203.7 13.1 63.6 4.7 4.6 3.7

Fixed-income securities . . . . . . . . . . . . . . . . . . 160.7 –13.9 14.6 –0.3 14.0 –3.0

Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 94.2 16.9 15.1 –1.5

Shares and other participating interests (1) . . . . 87.5 0.9 321.7 –6.1 3.7 0.1

Units of UCIs . . . . . . . . . . . . . . . . . . . . . . . . . . 100.9 3.6 – – 0.7 0.0

Insurance technical reserves . . . . . . . . . . . . . . . 115.0 14.3 5.5 0.4 – –

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.7 –1.2 15.1 –16.2 14.5 –1.9

Financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . 109.4 2.5 715.3 0.8 308.6 2.6

Notes, coins and deposits . . . . . . . . . . . . . . . . – – – – 0.5 0.1

Fixed-income securities . . . . . . . . . . . . . . . . . . – – 27.6 3.3 260.0 4.8

Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.6 3.8 172.5 –4.5 35.8 1.8

Shares and other participating interests . . . . . – – 489.8 2.3 – –

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 –1.4 25.5 –0.3 12.3 –4.1

Financial balance . . . . . . . . . . . . . . . . . . . . . . . . . 557.6 14.2 –200.6 –1.4 –255.9 –5.2

40

45

50

55

60

65

1998 1999 2000 2001 2002 2003

40

45

50

55

60

65

CHART 65 INDEBTEDNESS OF NON-FINANCIAL CORPORATIONS (1)

(End of quarter, percentages of GDP)

Sources : ECB, NBB.(1) Total of loans granted by the financial institutions of the euro area and of fixed-

income securities issued, excluding loans between associated enterprises, which are probably greater in Belgium than in the euro area.

Euro area

Belgium

During the fi rst nine months of the year under review, individuals displayed a pronounced preference for liquid assets, especially bank deposits, and for investments with insurance companies, mainly at the expense of fi xed-income securities. Enterprises reduced their recourse to external fi nancing, and this was refl ected mainly in a decline in the outstanding amount of bank loans. General government met its fi nancing needs by issuing fi xed-income securities, but also by reducing its assets.

8.2 Non-fi nancial corporations

During the fi rst nine months of 2003, in a context of slug-gish economic activity and great volatility on the fi nancial markets, the new fi nancial liabilities of Belgian companies decreased sharply, dropping below 1 billion euro, against nearly 17 billion euro in the corresponding period of 2002. That slowdown was due mainly to the low level of both unlisted share issues and recourse to bank loans.

99


1994 1996 1998 2000 2002–10

0

10

20

30

40

50

2002 2003–10

0

10

20

30

40

50

CHART 66 NEW FINANCIAL LIABILITIES OF NON-FINANCIAL CORPORATIONS

(Billions of euros)

Source : NBB.(1) This item covers, in particular, loans received from associated companies located

abroad.

Fixed-income securities

Unlisted shares and other participating interests

Listed shares

Bank loans

Total

First ninemonths

Other (1)–5

0

5

10

–10

0

10

20

1995

1997

1999

2001

2003

4

5

6

7

8

9

–10

–5

0

5

10

15

1995

1997

1999

2001

2003

CHART 67 BANK LOANS TO NON-FINANCIAL CORPORATIONS, GDP AND INTEREST RATES

Source : NBB.(1) Loans by Belgian and foreign credit institutions, end-of-quarter data adjusted for

the effects of exchange rate movements and sectoral reclassifications, and divided by the GDP deflator.

(2) Data adjusted for seasonal variations and calendar effects.(3) Weighted quarterly average of interest rates on typical business loans granted by

Belgian credit institutions. The weighting is based on the share of these loans in the total outstanding amount of loans granted to non-financial corporations.

DIFFERENTIAL BETWEEN THE GROWTH OF BANK LOANS AND GDP AND INTEREST RATES

Bank loans to non-financial corporations in real terms

(1) (right-hand scale)

GDP at constant prices (2) (left-hand scale)

Differential between the growth of bank loans to non-financial corporations and GDP growth (percentage points) (right-hand scale)

Interest rate on business loans (3)

(left-hand scale)

BANK LOANS TO NON-FINANCIAL CORPORATIONS AND GDP(Annual percentage changes)

The indebtedness of Belgian non-fi nancial corporations, defi ned as the sum of the loans obtained from the fi nan-cial institutions of the euro area and fi xed-income secu-rities issued, had tended to grow more than economic activity until the beginning of 2002, rising from 48.4 p.c. of GDP at the end of 1997 to 57.1 p.c. at the end of March 2002. Afterwards it declined to around 52.8 p.c. at the end of September 2003. Belgian enterprises thus seem to have a lower debt ratio than their counterparts in the euro area, whose indebtedness measured on the same basis had increased considerably faster from the end of 1999 up to the beginning of 2001, a rise which, after a period of relative stabilisation, was resumed in the last quarter of 2002, albeit at a less rapid rate.

Bank loans

After exceptional growth in 1999, net lending to non-fi nancial corporations by Belgian and foreign credit insti-tutions slowed down to the point where, in the second quarter of 2001, the outstanding amount in real terms contracted compared to the previous year for the fi rst time since 1994. Subsequently, except in the last quarter

of 2002, this outstanding amount continued to fall, the decline accelerating appreciably during the fi rst nine months of the year under review.

100

–20

–10

0

10

20

2000 2001 2002 2003–20

–10

0

10

20

2000 2001 2002 2003–20

–10

0

10

20

2000 2001 2002 2003–20

–10

0

10

20

CHART 68 LOANS GRANTED BY BELGIAN CREDIT INSTITUTIONS TO NON-FINANCIAL CORPORATIONS, BY SIZE OF ENTERPRISES (1), ACCORDING TO THE CENTRAL OFFICE FOR CREDITS

(End of quarter data, annual percentage changes in outstanding amounts)

Source : NBB.(1) Companies which filed their annual accounts in the abbreviated format are considered as small ones. Those which filed full-format accounts are regarded as large or medium-

sized depending on whether or not their turnover exceeded 37.2 million euro for two consecutive years.

SMALL ENTERPRISES MEDIUM-SIZED ENTERPRISES LARGE ENTERPRISES

BorrowingCredit lines

0

1

2

3

4

5

1995

1997

1999

2001

2003

0

1

2

3

4

5

CHART 69 INTEREST RATE DIFFERENTIALS ON LOANS TO NON-FINANCIAL CORPORATIONS VIS-À-VIS PUBLIC-DEBT INSTRUMENTS

(Monthly data, percentage points)

Source : NBB.(1) Differential compared to the interest rate on three-month Treasury certificates.(2) Differential compared to the yield on five-year linear bonds.(3) Differential compared to the interest rate on six-month Treasury certificates.

Overdrafts (1)

Fixed-term advances (3)

Investment credits (2)

The reduction in lending from 1999 to 2001 was mainly due to the weakening of economic activity. The rises in interest rates from mid-1999 to the end of 2000 had probably also contributed to this, as had the marked decrease in merger and acquisition activity, which had

been partly fi nanced by loans. In 2002 and during the fi rst three quarters of 2003, economic prospects were probably still too uncertain to exert a signifi cant effect on lending which, in this context, hardly reacted to the new decline in interest rates.

The data of the Central Offi ce for Credits – which permit a distinction according to the size of the debtors but are less exhaustive than those of the fi nancial accounts since, in particular, they cover only loans granted by Belgian banks – show that the contraction in lending between December 2002 and September 2003 appears to have affected mainly large and medium-sized enterprises. Credit lines were reduced even more than borrowing for large companies, whereas they continued to increase in the case of small and medium-sized enterprises.

While demand factors appear to be preponderant overall, the more restrictive attitude of Belgian banks, evidenced both by the data concerning lending rates and the results of the Eurosystem’s new bank lending survey, has prob-ably also depressed recent lending activity.

In fact, compared to the interest rates on risk-free invest-ments with the same maturity, the differentials in the case of interest rates on overdrafts – a fi nancial product usually used by SMEs – and on investment credits remained steady at substantially higher levels than in the past. On the other hand, the rates on fi xed-term advances, an instrument aimed more particularly at large companies, continued to be adjusted rapidly and almost fully to the changes in corresponding money

101


2002

-IV

2003

-I

2003

-II

2003

-III

2003

-IV

2004

-I–60

–40

–20

0

20

40

60

–60

–40

–20

0

20

40

60

2002

-IV

20

03

-I

2003

-II

2003

-III

2003

-IV

2004

-I

–60

–40

–20

0

20

40

60

–60

–40

–20

0

20

40

60

CHART 70 RESULTS OF THE EUROSYSTEM'S BANK LENDING SURVEY

Sources : ECB, NBB.(1) Balance of replies indicating the degree of easing or tightening (–) of the credit

standards applied to the approval of loans or credit lines.(2) Balance of replies indicating the degree of increase or decrease (–) in demand for

credit.

Belgium

Euro area

CRITERIA FOR GRANTING LOANS OR CREDIT LINES TO NON-FINANCIAL CORPORATIONS (1)

DEMAND FOR CREDIT FROM NON-FINANCIAL CORPORATIONS (2)

Change expected by respondents

Change observed by respondents

Change expected by respondents

Change observed by respondents

market rates. It should be pointed out in this connection that the lending rates used in the calculation of these differentials are derived from a survey among Belgian credit institutions relating to standard contracts. That survey was terminated in December 2003 because, in order to ensure comparability of the statistics on bank interest rates in the euro area, a new harmonised survey was introduced on the initiative of the ECB from the beginning of the year under review. However, the lending rates derived from these two surveys

are not comparable, partly because the defi nitions, calculation methods and bank selection procedures are not identical. The average contractual rates according to the new survey appear to be higher than the rates offered for standard loans according to the old survey with regard to overdrafts and fi xed-term advances, but lower for investment credits.

The widening of the margins might have resulted from an alignment with the conditions prevailing in neighbouring countries, owing to cross-border mergers. The sluggish economic climate, as well as the fears concerning the new Basle Accord,

0

200

400

600

1991

1993

1995

1997

1999

2001

2003

0

200

400

600

0

10

20

30

1991

1993

1995

1997

1999

2001

2003

0

10

20

30

CHART 71 STOCK MARKET PRICES IN BELGIUM AND IN THE EURO AREA

Sources : Euronext Brussels, Stoxx Limited, Thomson Financial Datastream.

Euro area (Dow Jones Eurostoxx Broad)

Belgium (Belgian All Shares)

Belgium

Euro area

PRICE-EARNINGS RATIO (Monthly averages)

SHARE PRICES(Monthly averages, indices January 1991 = 100)

Euro area average 1973-2003 = 13.9

Average for Belgium 1973-2003 = 13.0

102

–2

–1

0

1

2

3

4

5

6

1994 1996 1998 2000 2002 2002 2003–2

–1

0

1

2

3

4

5

6

CHART 72 NET ISSUES OF FIXED-INCOME SECURITIES BY BELGIAN NON-FINANCIAL CORPORATIONS

(Billions of euros)

Source : NBB.

Short-term securities

Long-term securities

First nine months

discussed in the chapter on fi nancial stability, probably also contributed to this. However, in this connection a study published in the Bank’s Financial Stability Review of 2003 shows that the cost of credit, in terms of equity, should not increase on average in Belgium as a result of the application of the Basle II Accord.

According to the Eurosystem’s bank lending survey, which constitutes a new source of information on supply and demand conditions in the credit markets, this raising of the margins was the main way in which Belgian banks tightened their lending conditions from the last quarter of 2002 onwards. However, since the second quarter of 2003, the Belgian banks covered by the survey have left these conditions unchanged over-all. During the last fi ve quarters they have proved to be less restrictive than the fi nancial institutions of the euro area. Furthermore, they seem to have encoun-tered lower demand. This weakening of demand is mainly attributable to the decrease in fi nancing needs, whether for investments in fi xed capital or for mergers and acquisitions. With regard to forecasts for the fi rst quarter of 2004, the banks stated in January that they intended to relax their lending criteria overall and expected a revival in demand.

Shares

Despite a gradual improvement in growth prospects and in the climate on the fi nancial markets, net issues of unlisted shares dropped sharply, falling from 7.1 billion euro during the fi rst nine months of 2002 to 1.9 billion euro during the corresponding period of 2003, chiefl y owing to substantial repayments. The volume of funds raised by companies on the stock markets remained very small during the fi rst nine months of the year under review, at 0.3 billion euro, after 0.1 billion during the cor-responding period of the previous year, owing to relatively low stock market prices.

After falling for several years, share prices nevertheless bounced back from the spring of 2003 onwards. From March to December, the Euronext Brussels broad index actually rose by about 35.7 p.c., slightly outstripping the rise recorded by the comparable index of the euro area, namely 32.7 p.c.

While the Brussels stock exchange had paralleled the movements recorded on the American and European markets until the beginning of 1999, owing to its sectoral composition, small size and low liquidity, it subsequently experienced neither the euphoria which continued for a further year, nor the extent of the correction which followed it in 2000 and 2001. On the other hand, after this period Belgian share price movements again followed more closely the stock market trends of the main industri-alised economies.

Judging by the relation between share prices and the earnings achieved by companies, Belgian shares appear to have remained undervalued during the year under review. However, this ratio rose from about 7.3 in March to just over 11.5 in December, i.e. a level closer to the average for the past thirty years, namely 13. In the euro area, share valuation levels remained higher than in Belgium, as the price-earnings ratio there exceeded its historical average of 13.9 from September 2003 onwards.


Fixed-income securities still play only a limited role in the external fi nancing of companies, both in Belgium and in the euro area as a whole. The share of the securities of Belgian non-fi nancial corporations in the total outstand-ing amount issued by residents has, however, continued to increase since the end of the 1990s, while still remain-ing below 10 p.c. In fact, between December 1998 and September 2003, the outstanding amount of the short-term securities of companies was multiplied by a factor

103


TABLE 40 FINANCIAL ASSETS AND LIABILITIES OF GENERAL GOVERNMENT

(Billions of euros)

Source : NBB.(1) Including “Silver Fund Treasury Bonds”.

First nine months

1999 2000 2001 2002 2003 2002 2003

Formation of financial assets (1) . . . . . . . 2.1 1.6 5.0 4.4 n. –1.0 –2.5

New financial liabilities . . . . . . . . . . . . . 2.9 2.0 4.5 4.9 n. 0.9 2.6

Securities denominated in euro . . . . . 2.2 4.2 5.4 5.5 n. 4.4 4.1

of which :

Treasury . . . . . . . . . . . . . . . . . . . 2.9 5.2 8.5 5.4 0.1 4.4 4.9

At up to one year . . . . . . . . . . –7.3 –4.0 1.7 –0.3 –0.4 3.2 3.7

At over one year . . . . . . . . . . . 10.2 9.3 6.7 5.7 0.5 1.2 1.2

Other liabilities denominated in euro (1) 0.8 –0.4 0.5 0.7 n. –2.7 –2.2

Liabilities in foreign currencies . . . . . . –0.1 –1.8 –1.4 –1.2 n. –0.8 0.7

of which :

Treasury . . . . . . . . . . . . . . . . . . . –0.1 –1.8 –1.4 –1.2 –1.3 –0.8 0.7

Financial surplus or deficit (–) . . . . . . . . –0.8 –0.4 0.5 –0.5 n. –1.9 –5.2

of more than six and the fi gure for long-term securities doubled.

In the short-term segment, new issues of loans, consist-ing almost exclusively of treasury bills, more than doubled during the fi rst nine months of the year under review, compared to the corresponding period of the previous year. Although down compared with 2002, net issues of long-term securities remained steady in 2003.

8.3 General government

During the fi rst nine months of the year under review, the accounts of general government deteriorated compared to the corresponding period of the previous year : the defi cit amounted to 5.2 billion euro, against 1.9 billion during the fi rst nine months of 2002. This deterioration of the fi nancial balance was refl ected in the changes in both fi nancial assets and fi nancial liabilities. The former in fact decreased by 2.5 billion euro, against 1 billion euro in 2002, while the latter increased by 2.6 billion euro, after having risen by 0.9 billion in 2002.

These new fi nancial liabilities mainly took the form of net issues of securities denominated in euro by the Treasury, totalling nearly 5 billion euro at the end of September, against 4.4 billion a year earlier. However, over 2003 as

a whole, the outstanding amount of securities denomi-nated in euro issued by the Treasury remained virtually unchanged, unlike in 2002. In fact, at the end of the year, the Treasury allocated to the buy-back of public debt securities the proceeds of the capital transfer made by Belgacom, to compensate for the taking over by the State of the company’s pension liabilities.

During the year under review, the Treasury generally adhered to the previous year’s policy on issues and debt management. In order to hold down the cost of fi nancing, the main emphasis is on risk management and on increas-ing liquidity, including through recourse to primary dealers and recognised dealers, consortium issues, buy-backs and the diversifi cation of security holders.

Thus, with a view to limiting the interest rate risk, the Treasury kept to its policy of maintaining a debt duration of about four years. The share of the short-term debt of general government was kept at the end-of-2002 level, which was comparable to the level observed on average in the other countries of the euro area. This share had been sharply reduced since, on the entry into force of monetary union, it was still 4 percentage points above the average level for the euro area. Furthermore, the Treasury also repurchased substantial volumes of debt securities during the year under review, in order to actively manage the maturity calendar for long-term loans which determines

104

0

10

20

30

40

50

0

10

20

30

40

50

0

1

2

3

4

0

1

2

3

4

0

3

6

9

12

15

1998 20021998 2002

1998 20021998 2002

1998 20021998 2002

0

3

6

9

12

15

CHART 73 PUBLIC DEBT IN BELGIUM AND IN THE EURO AREA (1)

(End of period, percentages of total)

Sources : ECB, NBB.(1) Gross consolidated public debt.(2) Debt with an initial duration of up to one year.(3) For 1998, except for the currencies of the Member States which adopted the euro.(4) Including the debt held by residents of euro area countries other than the

country of issue.

Euro area

Rest of the world

EURO AREA

EURO AREA

EURO AREAFOREIGN HOLDERS (4)

BELGIUM

FOREIGN CURRENCY DEBT (3)

BELGIUM

SHORT-TERM DEBT (2)

BELGIUM

the future refi nancing risk. As in 2002, these buy-backs mainly took the form of purchases by private auction via MTS-Belgium and of reverse buy-backs; a traditional loan was bought back by exchange.

The concentration of issues on certain duration seg-ments, particularly by the launching of two new bench-mark loans at fi ve years and ten years respectively, also fi ts in with the management of the maturity calendar and is at the same time aimed at increasing liquidity. The choice of the consortium method for launching the two new linear bond lines and the systematic offering of the benchmark loans at each linear bond tender are likewise motivated by the desire to increase liquidity. Furthermore, issuing via consortiums makes it possible to reach a more diverse group of investors. In recent years the Belgian public debt has been placed increasingly abroad, and the leeway in that respect between Belgium and the euro area had already been largely made up by the end of 2002. Nevertheless, the Treasury wishes to continue its diversifi cation efforts. The expansion, in 2003, of the group of recognised dealers, whose main task is the promotion of public debt securities abroad, should be viewed from this angle. The decision to open up the primary market for linear bonds to private investors from the beginning of 2004 onwards is also intended to achieve that aim.

In the fi rst nine months of 2003, apparently contrary to the efforts made for several years to reduce the exchange risk, the Treasury contracted new liabilities in foreign cur-rencies, whereas it had made net repayments during the fi rst three quarters of 2002. However, this increase in the foreign currency debt was due to the expiry of a substan-tial swap, concluded at the end of 2002, exchanging a debt in Swiss francs against a loan in euro. Altogether, taking account of the appreciation of the euro and the decrease in foreign currency liabilities in the fourth quarter of the year under review, the share of the foreign currency debt in the public debt declined further in 2003 (though admittedly this was due in part to the effect of a swap similar to the one at the end of 2002), thus falling to an extremely low level in a historical perspective. Having peaked at 19.4 p.c. of the total public debt at the end of 1984, it had in fact already declined by the end of 2002 to the same level as in the euro area, namely 2 p.c.

While the measures taken by the Treasury in recent years to increase the liquidity of public debt securities indisput-ably had an effect on fi nancing conditions, the greater part of the decrease in the yield differential compared to the German Bund is nevertheless attributable to the rela-tive improvement in Belgium’s public fi nances compared to those of Germany.

During the run-up to the third stage of EMU, the yields on the long-term bonds of the participating countries had converged considerably. Although the introduction of the euro put an end to the exchange risk between the Member States, the yield differentials still did not disappear, owing to differences in liquidity and credit risk. The diversifi cation movements which took place in the portfolios of investors after 1 January 1999 further-more confi rmed this heterogeneity and pushed up yield differentials during the initial phase of monetary union.

105


0

2

4

6

0

20

40

60

1998 1999 2000 2001 2002 20030

10

20

30

40

-4 0 8 12 160

10

20

30

40

4

CHART 74 FINANCING CONDITIONS OF GENERAL GOVERNMENT

Sources : BIS, EC, NBB.

Dec

reas

e in

yie

ld d

iffer

entia

l (b

asis

poi

nts)

Belgium

Germany (left-hand scale)

Reduction in relative indebtedness(Percentage points of GDP)

Yield differential (basis points) (right-hand scale)

TEN-YEAR BENCHMARK LOANS(Monthly averages)

REDUCTION IN RELATIVE INDEBTEDNESSCOMPARED TO GERMANY AND DECREASE IN THE YIELD DIFFERENTIAL (2001-2003)

FR

PT

NL

FI

AT

IE

IT

BE

ES

GR

Since 2001, however, these differentials have diminished considerably : thus, the difference between the yield on the Belgian ten-year benchmark loan and the German benchmark loan fell below 10 basis points in 2003.

For the whole of the euro area, a fairly marked correlation is observable between the relative movement in public fi nances and that in yield differentials during this period. The Member States which have reduced their debt ratio the most in comparison with Germany have recorded the greatest improvement in their fi nancing conditions.

8.4 Individuals

Formation of fi nancial assets by individuals

The formation of fi nancial assets by individuals slowed down somewhat during the fi rst nine months of 2003 to 16.7 billion euro, against 17.5 billion over the corresponding period of 2002. As in the two preceding years, individuals displayed a strong preference for liquidity, due to the low opportunity cost of holding currency, the cyclical uncertainty and the vol-atility of the fi nancial markets. The formation of short-term assets was therefore more than twice as high as the forma-tion of assets at over one year, which was extremely small.

Among short-term investments, savings accounts with credit institutions showed very large positive fl ows, espe-cially at the beginning of the year, reaching a total of over 12 billion euro during the fi rst nine months of 2003. At the end of September, nearly 18 p.c. of the total fi nan-cial assets of individuals thus took the form of savings deposits. Having suffered often signifi cant losses on their direct or indirect investments in shares, households fell back on less risky and more liquid investments. Savings deposits also benefi ted from the decline in popularity of time deposits and savings notes. Owing to the advanta-geous fi scal status of savings deposits, the yields on these instruments were less attractive : this applied throughout 2003 for time deposits and in the fi rst half of the year for savings notes. The banks competed more keenly to attract such deposits, in the hope of subsequently channelling the savings thus accumulated into investment products, which would bring them commission incomes.

Individuals turned against longer term investments. Only the products offered by insurance companies and pen-sion funds were in great demand, generating a net infl ow, during the fi rst nine months, of 14.5 billion euro. The funds raised by these institutions were for the most part invested in fi xed-income securities. As in the previous year, net investments in UCI units declined, the greater part going to index UCIs with capital protection, thus refl ecting

106

–20

–10

0

10

20

30

–2

–1

0

1

2

3

1995

1997

1999

2001

2003

CHART 76 SAVINGS DEPOSITS OF INDIVIDUALS AND INTEREST RATE DIFFERENTIALS

(1)

Source : NBB.(1) On the basis of the basic interest rate on regulated savings deposits in euro

(Belgian franc up to 1998), plus the fidelity bonus, and of interest rates net of the withholding tax on movable property on three-month deposits and five-year savings notes in euro (Belgian franc up to 1998).

Regulated savings deposits (percentage changes compared to the corresponding quarter of the previous year) (left-hand scale)

Differential between the interest rate on savings deposits and that on three-month deposits

Differential between the interest rate on savings deposits and that on five-year savings notes

(quarterly averages,percentage points)(right-hand scale)

–30

–20

–10

0

10

20

30

40

50

–30

–20

–10

0

10

20

30

40

50

1994

1996

1998

2000

2002

2002

2003

CHART 75 FORMATION OF FINANCIAL ASSETS BY INDIVIDUALS

(Billions of euro)

Source : NBB.(1) Includes transitional items and statistical adjustments.

Cash and deposits


UCI units

Shares and other participating interests

Total

Investments with insurance companies and pension funds

Other (1)

e

First nine months

the still uncertain economic climate and the strong risk aversion of individuals. Private closed-end equity funds (“PRICAFs”) and real estate UCIs also attracted Belgian investors, but their relative weight remained slight. Investment in shares remained limited, while the poor long-term yields, which in June fell to a post-war low, caused individuals to make appreciable reductions in their portfolio of fi xed-income securities.

The recent debate on the “one-off declaration of fi nancial assets” and the expected entry into force of the European directive on the taxation of savings have drawn attention to the fi nancial assets of Belgian individ-uals abroad. According to the methodology of the fi nan-cial accounts compiled by the Bank, an asset is classed as foreign solely on account of the debtor’s residence, not the currency in which the asset is denominated or the

place where it is held. Thus, for instance, a dollar deposit in an account with a Belgian bank will be regarded as a domestic asset, while American shares deposited with the same bank will be classifi ed among foreign assets. Furthermore, the units of Belgian UCIs are recorded as domestic assets even if those UCIs have a portfolio of foreign securities.

The fi gures concerning foreign assets held by households need to be interpreted with caution because, in the Belgian fi nancial accounts, the assets of individuals are usually estimated as a balance. Furthermore, the data concerning outstanding amounts are chiefl y compiled on the basis of the cumulative fl ows of the balance of payments, with subsequent revaluation based on various assumptions.

During the last ten years, the geographical distribution of the formation of fi nancial assets by households has fl uctuated greatly. Until 1999, Belgians were exporting capital : furthermore, except in 1998, these foreign investments were substantial, representing roughly half

107


–15

–10

–5

0

5

10

15

3

4

5

6

7

8

9

1995

1997

1999

2001

2003

CHART 77 FIXED-INCOME SECURITIES HELD BY INDIVIDUALS AND LONG-TERM YIELD RATES

(Percentage changes compared to the corresponding quarter of the previous year, except for the yield rate)

Source : NBB.

Fixed-income securities held by individuals (left-hand scale)

Yield rate of the Belgian State’s ten-year benchmark loan (quarterly averages) (right-hand scale)

100

120

140

160

180

200

220

100

120

140

160

180

200

220

1995

1997

1999

2001

Sep.

20

03CHART 78 EXTERNAL FINANCIAL ASSETS OF INDIVIDUALS

(End of period, billions of euro)

Source : NBB.

Outstanding amounts

Outstanding amounts, excluding the effects of revaluation from 1994 onwards

of the total formation of assets by Belgian individuals. The very attractive nature of foreign stock market invest-ments during this period played a role here. In contrast, the trend was reversed during 2000 and 2001, probably owing to the bursting of the stock market “bubble”. In 2002 and at the beginning of 2003, the decline in share prices continued to lead to capital losses on foreign assets, and the losses were aggravated by the appreciation of the euro. However, since 2002, Belgian individuals have resumed, albeit timidly, net acquisitions of assets abroad. At the end of September 2003, these were estimated at around 167 billion euro, or a quarter of the total fi nancial assets of households. If the units of Belgian UCIs investing in foreign securities are regarded as foreign assets, and if the units held by residents in foreign UCIs investing in Belgian securities are regarded as domestic assets, the fi gure came to about 188 billion euro.

New fi nancial liabilities of individuals

During the fi rst nine months of the year under review, the new fi nancial liabilities of individuals reached 2.5 billion euro, against 1.2 billion in 2002. This increase was chiefl y due to the dynamism of home loans, whereas, according to the NAI’s data concerning the fi rst half-year, consumer credit showed a more moderate increase.

During the fi rst ten months of 2003, the amount of new mortgage contracts recorded by the PLU, excluding those for refi nancing existing loans, grew by over 30 p.c. compared to the corresponding period of the previous year. Since 2002, the growth in mortgage lending has contrasted with the weakness of activity in the building sector. This dichotomy is due not only to the traditional time-lag between loans, transactions on the secondary market for residential property and construction, but also to the relative scarcity of building land, which restricts the supply of new housing and pushes up the price of build-ing plots. Loans for the acquisition of a new dwelling rep-resented only about a fi fth of the mortgage loans granted for purposes other than the refi nancing of existing loans.

The revival of interest in investment in real estate during the recent period is attributable to the combination of several factors. The most important is probably the low level of mortgage interest rates, which facilitates access by households to this type of investment by reducing repay-ment burdens.

Furthermore, some Belgian banks relaxed their mortgage lending conditions somewhat, especially in terms of the loan-to-value ratio and the duration. The range of loans offered was widened to suit the various profi les of households with regard to risk aversion, and to match the changing pattern of income over their lifetime. For instance, despite particularly low long-term rates, formulas

108

4

5

6

7

8

9

1995

1997

1999

2001

2003

1,5

1,2

0,9

0,6

0,3

0

CHART 79 NEW MORTGAGE LOANS TO INDIVIDUALS AND INTEREST RATE

(Monthly data)

Sources : PLU, NBB.(1) Excluding those for refinancing existing loans. Seasonally adjusted gross flows.(2) Rate for a twenty-year loan, subject to five-yearly revision and wholly covered by a

mortgage.

Mortgage interest rate (2) (right-hand scale)

New mortgage loans (1)

(billions of euro) (left-hand scale)

40

60

80

100

120

140

160

180

40

60

80

100

120

140

160

180

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

(1)

CHART 80 HOUSING PRICE INDICATORS IN BELGIUM

(indices 1970 = 100)

Sources : FPS Economy, SMEs, Self-employed and Energy ; NAI, Stadim, NBB.(1) First nine months.(2) Prices of private contract sale of small and medium-sized dwellings.(3) First monthly payment for a twenty-year mortgage loan, subject to five-yearly

revision of the interest rate, for the purchase of a dwelling (valued at the average price of the current year).

Housing prices (2)

/ Disposable income of households

Monthly payment (3)

/ Disposable income of households

Monthly payment (3)

/ Rental

at annually variable rates were even more successful than in the previous year, because over a quarter of new con-tracts were concluded in this form. This type of contract was traditionally not very popular among Belgian house-holds, which were put off by the volatility of repayment costs, even though this type of contract can relieve the burden on the borrower at the beginning of the con-tract, when incomes are generally lower. The innovation consisted in including an “accordion clause”, whereby variations in the reference rate during the contract do not lead to higher monthly payments, but have the effect of lengthening the duration of the loan. Furthermore, this is in line with a strategy whereby the banks aim to promote products which limit their interest-rate risk.

Lastly, the government has recently introduced measures in favour of the residential property sector : at federal level, it has eased the criteria giving entitlement to a reduced VAT rate – 6 p.c. instead of 21 p.c. – for the renovation of existing dwellings, while at regional level the Flemish Region has, from 2002 onwards, reduced the registration fees payable on the purchase of a home on the secondary market, and the Brussels-Capital Region has done the same from 2003 onwards.

As a result of these developments, real estate prices in Belgium rose by a further 6 p.c. in real terms during the fi rst nine months of 2003, after increasing by 5.8 p.c. in 2002. These are larger than the increases recorded during

the preceding fi fteen years, which averaged 4.2 p.c., but do not indicate a boom comparable to that which occurred in some European countries.

The fall in interest rates during the last three years counterbalanced the impact of the rise in the prices of residential property on the trade-off between purchasing or renting : the ratio between a fi rst monthly repayment for the purchase of a small or medium-sized dwelling and the average rent remained virtually stable in 2001 and 2002 and even declined slightly in 2003, despite the rise in prices.

In a longer-term perspective, despite the continuous increase in the ratio between the price of dwellings and the disposable income of individuals since 1986, the decline in interest rates also kept repayment costs fairly stable in proportion to disposable income. The data from the Central Offi ce for Credits to Individuals furthermore indicate a low and relatively constant default rate with regard to mortgage loans.

In the fi rst half of 2003, new consumer credit rose by just under 3 p.c. compared to the corresponding period of 2002. This increase, which was slightly greater than in the previous year, remained fairly limited owing to the

109


–5

0

5

10

15

6

7

8

9

10

1995

1997

1999

2001

2003

(1)

CHART 81 NEW CONSUMER CREDIT, CONSUMPTION OF DURABLE GOODS AND INTEREST RATE

(Percentage changes compared to the corresponding period of the previous year, except for the interest rate)

Sources : NAI, NSI, NBB.(1) For new consumer credit, data for the first six months.(2) Vehicles and electrical household appliances.(3) Average by period of the rate on a loan of 7,450 euro over three years for the

purchase of a new car.

New consumer credit(left-hand scale)Consumption of durable goods (2)

(at current prices)

Interest rate on consumer credit (3)

(right-hand scale)

unpromising economic climate and the depressed labour market, while the rates charged for this type of credit declined.

Despite a low weight in the total debts of Belgian house-holds, consumer credit is nevertheless still the main source of excessive indebtedness. Thus, the payment arrears on consumer credit contracts recorded at the Bank’s Central Offi ce for Credits to Individuals amounted to 1.3 billion euro at the end of 2003, whereas for mortgage loans, the outstanding amount of which is six times greater, the fi gure was only 0.7 billion. Comparison between current contracts and defaulting contracts shows that the open-ing of credit facilities, the value of which represents a little under 20 p.c. of the outstanding amounts of consumer credit, is responsible for more than 25 p.c. of the amount of arrears.

111

FINANCIAL STABILITY

9. Financial stability

9.1 International fi nancial markets

Main developments on the international equity and bond markets

After three consecutive years of decline, the main stock markets staged a general recovery in 2003, with the S&P 500, Eurostoxx 50 and Nikkei 225 ending the year with gains of 26.4, 15.7 and 24.5 p.c. respectively. The halt to the slide in share prices – which came around mid March

in the United States and the euro area, slightly later in Japan – largely coincided with the gradual easing of the geopolitical tensions which had reached their peak in the run-up to the Iraq war. However, the strength of the rally varied, partly because of the weakening of the US dollar against the euro and the yen, but primarily because of the differences in the timing of the economic upturn in the principal industrialised countries. While share prices in the United States – and to a lesser extent in Japan – responded favourably to the publication of statistics pointing to a gradual strengthening of economic activity,

30

50

70

90

110

2001 2002 200330

50

70

90

110

0

20

40

60

2001 2002 20030

20

40

60

CHART 82 STOCK MARKET DEVELOPMENTS

(End-of-week data)

Sources : Chicago Board Options Exchange, Deutsche Börse, Thomson Financial Datastream.(1) Measures of expected volatility based on the prices of a basket of options on the S&P 500 and Dax stock market indices.

S&P 500

Nikkei 225

Dow Jones Eurostoxx 50

S&P 500

Dax

Average 1994-2003 (S&P 500)

Average 1994-2003 (Dax)

IMPLIED VOLATILITY(percentages)

STOCK MARKET INDICES(indices January 2001 = 100)

112

the fact that growth was slow to pick up in the euro area during the fi rst half of the year continued to depress stock markets in that region. This divergence was also refl ected in the pattern of implicit stock price volatility, which in the euro area took longer to revert to the average for the past ten years than it did in the United States.

While expansionary monetary and fi scal policies bolstered the international stock market rally, the low level of inter-est rates was also a factor accelerating the restoration of sound balance sheets for American and European fi rms, as many of them had incurred sizable additional debts in the second half of the 1990s in order to fi nance substan-tial investments in real and fi nancial assets. In 2003 those fi rms continued to unwind their fi nancial imbalances by disposing of assets, taking advantage of the profi ts recovery to reduce their dependence on external fund-ing and making use of the low interest rates to secure more favourable fi nancing terms by converting short-term debts into long-term loans. In Japan, as well, the very low interest rates and rising profi tability cut the cost of serv-icing corporate debts and brought a slight improvement in companies’ fi nancial health, which had suffered from excessive debt levels since the early 1990s.

0

3

6

9

12

15

1991

1993

1995

1997

19

99

20

01

20

03

0

3

6

9

12

15

CHART 83 GLOBAL DEFAULT RATE ON PRIVATE SECTOR BONDS

(Monthly data, percentages of the total outstanding amount of bonds(1))

Sources : Moody’s, Thomson Financial Datastream.(1) Number of corporate bonds that defaulted during the previous twelve months,

expressed as a percentage of the total number of rated corporate bonds.

(2) Bonds with a rating of Ba1 or lower.

Speculative grade bonds (2)

All bonds

0

1

2

3

2001 2002 20030

1

2

3

0

1

2

3

2001 2002 20030

1

2

3

0

5

10

15

20

25

2000 2001 2002 20030

20

40

60

80

CHART 84 BOND MARKET RISK PREMIUMS

(Percentage points)

Sources : Bloomberg, JP Morgan, Merill Lynch, Thomson Financial Datastream.(1) Differentials in relation to the fixed-rate component of ten-year swaps for

corporate bonds with a residual maturity of seven to ten years, end-of-week data.(2) Differentials in relation to the interest rate on American Treasuries with a

corresponding maturity, daily data.(3) EMBI- + index.

A BBB

EURO AREA

CORPORATE BOND SPREADS IN THE UNITED STATES AND THE EURO AREA (1)

UNITED STATES

INTEREST RATE SPREADS ON GOVERNMENT BONDS OF EMERGING MARKETS DENOMINATED IN US DOLLAR (2)

A BBB

Composite index (3)

Turkey

Brazil

Argentina (right-hand scale)

(left-hand scale)

113

FINANCIAL STABILITY

Stronger growth combined with progress in the restruc-turing of corporate balance sheets contributed to a fur-ther fall in the overall rate of default on private sector bonds, following the peak reached at the end of 2001. Though the decline in this indicator of corporate default can be regarded as a harbinger of an improvement in the creditworthiness of companies, the fi gure recorded at the end of 2003 was still well above the average for the period from 1970 to 1999. This could indicate that the fi nancial health of the debtor fi rms has still not been fully restored. Nonetheless, investors in corporate bonds from the euro area and the United States were satisfi ed with a considerably smaller risk premium in 2003. Yield differen-tials between bonds with a BBB rating and the swap inter-est rate more than halved between the beginning and end of 2003. That probably resulted from the expectation of stronger international economic growth and a further improvement in corporate balance sheets, but could also point to a search for higher yields, as the interest rate on risk-free investments fell to an all-time low in the fi rst half of 2003. A similar motive may have contributed towards the shrinking of interest rate spreads on government bonds of emerging countries, the difference between the total yield on the composite index of these bonds and the yield on American Treasuries having fallen from 736 basis points at the beginning of the year under review to a record low of 418 basis points at the end of 2003.

However, more fundamental structural developments in a number of emerging economies also played a role in this reduction in fi nancing costs. Thus, the steep decline in margins on the government debt of Brazil and Turkey can also be attributed to the policies pursued by the govern-ments of those countries since the beginning of 2003. By adhering to the fi scal and monetary targets under the programmes agreed with the IMF, the governments gradually succeeded in allaying investors’ fears over the maintenance of the necessary discipline in the conduct of economic policy. These two countries also managed to maintain a large primary surplus on the general gov-ernment account and to reduce infl ation and domestic interest rates below the levels prevailing at the beginning of the year. Although Argentina also made progress in restoring non-infl ationary growth, that country took hardly any steps to deal with the problems of the domes-tic fi nancial sector or to restructure the public debt, on which payments are still suspended. Following the expiry of a provisional agreement with the IMF at the end of August, Argentina concluded a new three-year Standby Arrangement with that institution in September : one of the provisions under this programme is that Argentina should increase its primary surplus from 2.5 p.c. of GDP in 2003 to 3 p.c. in 2004.

TABLE 41 FINANCIAL SOUNDNESS INDICATORS OF THE BANKING SECTOR IN THE UNITED STATES AND IN THE EURO AREA

(Percentages)

Sources : FDIC, Bankscope.(1) The data relate to banks whose deposits are guaranteed by the FDIC.(2) Annualised data for the first half of 2002 and 2003.(3) End-of-period data.(4) Data relating to the 1996-2002 period are based on a non-constant sample of roughly 250 banks. Data relating to the first half of 2002 and 2003 are based on a constant

sample of 41 banks for the solvency ratio and 78 banks for the other indicators.

First half year

Average1996-2000

2001 2002 2002 2003

United States (1)

Loan loss provisions (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60 0.97 1.02 1.00 0.77

Cost-income ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59.6 57.9 56.1 55.1 56.5

Return on equity (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.8 13.0 14.1 14.6 15.0

Solvency ratio (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6 12.9 13.0 13.2 13.2

Euro area (4)

Loan loss provisions (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60 0.54 0.69 0.67 0.64

Cost-income ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68.5 69.3 70.0 69.6 67.0

Return on equity (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 10.2 8.3 9.3 9.4

Solvency ratio (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 10.7 11.0 11.0 11.3

114

Developments in the banking sector of the euro area and the United States

The stock market rally and the improvement in both the fi nancial structure of businesses and the macroeconomic fundamentals in the emerging economies were not the only features of the market environment in which the banks pursued their activities during the year under review. That environment was also infl uenced by the greatly increased volatility of the long-term interest rate, a variable to which the banks are traditionally highly sen-sitive. However, the macroprudential indicators appear to suggest that credit institutions in the United States and the euro area have weathered these developments well, as most fi nancial soundness indicators improved in 2003 relative to those for 2001 and 2002 which, it must be said, were particularly diffi cult years for banks in the United States and the euro area.

These encouraging fi gures confi rm the resilience demon-strated by the banking sector in the face of a succession of adverse shocks occurring between 2000 and 2002. This robustness is due partly to a degree of disintermediation in business fi nancing and to the use of new risk manage-ment techniques which tempered the overall effect of the deterioration in the economic climate on the banks’ loan loss provisions. In that connection, a survey by the ratings agency FitchRatings in 2003 confi rmed that the American and European banks have made increasing use of credit derivatives in recent years, in order to transfer substantial

volumes of risk to other market players, especially insur-ance companies. At the same time, banks responded to the impaired creditworthiness of fi rms by tightening up their lending criteria.

Thanks to the improvement in risk management tech-niques, loan loss provisions were therefore kept down to a lower level than might have been expected in the light of the earlier cyclical downturns. Other factors, such as the strength of the property markets, the steep fall in interest rates or the efforts to control costs also helped to curb the downward pressure on the profi tability of credit institutions. Thus, the American banks succeeded in raising their fi nancial profi tability in 2002 and 2003 to a level higher than that prevailing at the end of the previous decade. In contrast, euro area banks were harder hit by the downturn, as their fi nancial profi tability fell below 10 p.c. in 2002 and 2003.

This weaker performance by the European banks did not affect their solvency. In both the United States and Europe, solvency ratios continued to climb, even though they were already well above the required minimum of 8 p.c. at the beginning of the year under review. This strengthening of their solvency made banks in the euro area and the United States more capable of withstanding any additional shocks. However, credit institutions were also able to take advantage of the low interest rates to realise capital gains by selling off part of their securities portfolio. The latent gains which form additional reserves

TABLE 42 PROFIT AND LOSS ACCOUNT OF BELGIAN CREDIT INSTITUTIONS (1)

(Consolidated data, percentage changes compared to the corresponding period of the previous year, unless otherwise stated)

Sources : BFC, NBB.(1) Including the results of the Belgian branches of foreign banks, on a territorial basis.(2) These figures were adjusted for the impact of the removal of Dexia BIL from the scope of consolidation Dexia Bank Belgium.

First nine months p.m.Results for 2002, billions of euros

2000 2001 2002 2002 2003 (2)

Banking income . . . . . . . . . . . . . . . . . . . . . . . . . 15.3 1.4 –4.6 –2.7 –1.9 24.7

Net interest income . . . . . . . . . . . . . . . . . . . . . 3.0 4.6 3.2 6.2 –3.6 12.7

Non-interest income . . . . . . . . . . . . . . . . . . . . 28.5 –1.2 –11.7 –10.4 –0.1 12.0

Operating expenses (–) . . . . . . . . . . . . . . . . . . . . 19.0 4.1 –3.8 –3.1 –1.9 18.4

Personnel costs . . . . . . . . . . . . . . . . . . . . . . . . 11.7 6.7 –0.5 2.0 –0.3 8.2

Other operating expenses . . . . . . . . . . . . . . . . 24.9 2.3 –6.3 –6.8 –3.2 10.3

Gross operating result . . . . . . . . . . . . . . . . . . . . . 6.8 –5.6 –6.9 –1.7 –1.9 6.2

Value adjustments (–) . . . . . . . . . . . . . . . . . . . . . –9.6 4.6 36.2 91.4 –23.0 2.2

Net operating result . . . . . . . . . . . . . . . . . . . . . . 12.3 –8.3 –20.2 –20.8 6.8 4.1

115

FINANCIAL STABILITY

to cater for future shocks were correspondingly reduced by these transactions.

9.2 Belgian fi nancial intermediaries

Profi tability and solvency of the banking sector

After declining for two successive years, the net operating result of Belgian banks produced an increase of 6.8 p.c. during the fi rst nine months of the year under review. However, this upturn is due solely to the reduction in value adjustments, down 23 p.c., while the gross oper-ating result – that offers a more faithful picture of the banks’ pure operational outcome – declined for the third consecutive year.

Banking proceeds were down 1.9 p.c., mainly because the growth of net interest income ceased, giving way to a fall of 3.6 p.c. In contrast, non-interest income, that had fallen by 10.4 p.c. in the fi rst nine months of 2002, remained more or less steady during the corresponding period in 2003.

In 2003 the banks once again reduced their operating expenses, but this time proportionally to banking pro-ceeds. This halted the increasing trend in the cost-income ratio. While operating expenses had represented two-thirds of banking proceeds in 1998, they accounted for three-quarters of that fi gure in 2002.

Expressed as a percentage of own funds, profi tability dropped from 14.6 p.c. in the fi rst nine months of 2002 to 13 p.c. in 2003, well below the 1999 and 2000 levels when the banks enjoyed the benefi ts of the strong economic growth and soaring share prices.

The solvency ratio, which had risen from 11.9 p.c. in 2000 to 13.1 p.c. in 2002, remained at that high level in 2003, well above the required minimum of 8 p.c. The propor-tion of Tier 1 capital – which includes only own funds in the strict sense – continued to grow, partly as a result of the repayment of subordinated debts, which form part of the additional capital elements constituting Tier 2 capital. Despite the high solvency position of the banking sector as a whole, some institutions do have lower ratios, but analysis of the distribution reveals that over 75 p.c. of all banking assets in Belgium are held by institutions with a solvency ratio of over 12 p.c.

Market activities

The relatively stable level of non-interest income earned by Belgian banks in 2003 actually conceals highly con-trasting developments in the proceeds from their various activities. The decline in interest rates once again enabled them to realise major gains on their investment portfolios : in the fi rst nine months of 2003, these gains increased by 16.3 p.c., against 15 p.c. for the corresponding period in 2002. Furthermore, the stock market rally brought a surge in income from trading and exchange transactions,

TABLE 43 INDICATORS OF PROFITABILITY AND SOLVENCY OF CREDIT INSTITUTIONS GOVERNED BY BELGIAN LAW (1)

(Consolidated data, percentages)

Sources : BFC, NBB.(1) Including the results on a territorial basis of the Belgian branches of foreign banks.(2) End-of-period data.(3) Own funds in the strict sense, consisting essentially of paid-up capital, reserves, the fund for general banking risks, minority interests and, as the main deduction item,

positive consolidation differences.

First nine months

1998 1999 2000 2001 2002 2002 2003

Cost-income ratio (1) . . . . . . . . . . . . . . . . . . . . . . . . 65.8 69.9 72.2 74.1 74.7 72.3 72.4

Return on equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.0 17.1 20.4 13.7 11.8 14.6 13.0

Risk asset ratio (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 11.9 11.9 12.9 13.1 12.7 13.0

of which :

Tier I (2) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 7.6 7.5 8.1 8.5 8.2 8.8

116

up by 37.9 p.c., whereas that income had been slashed by 51 p.c. in the fi rst nine months of the previous year. While the most volatile components of the banks’ non-interest income thus sprinted ahead, the key component – namely fee income – remained steady while other revenues – mainly income from leasing activities – declined by 27.8 p.c.

The importance of trading activities for the Belgian banks is apparent not only from the strong expansion in this source of income in 2003, but also from the recent shifts in the composition of the securities portfolios of those institutions. While in 1996, barely 8 p.c. of the securities held by the banks formed part of the trading portfolio, that had risen to 18 p.c. by the end of 2002, growing still further to 22 p.c. by the end of September of the year under review. In addition, there were major changes within the investment portfolio itself. The share of Belgian government securities, which had long predominated, was eroded, mainly in favour of government securities issued by other countries.

The composition of the securities portfolio infl uences the way in which the assets are accounted for. While securi-ties in the trading portfolio are recorded at market value, the valuation of those in the investment portfolio is based on the acquisition cost, the market price being used as a reference only if it is lower. Differences between market prices and accounting values are mainly infl uenced by the movements in long-term interest rates, since fi xed-income securities make up more than 95 p.c. of the investment portfolio. They permit the creation of undisclosed reserves that the banks can use to absorb fl uctuations in their

other sources of income. During the fi rst nine months of 2003, Belgian banks realised gains on their investment portfolio totalling 1.2 billion euro on a net basis. These gains were in addition to the net gains realised and the net valuation differences on the trading portfolio, which represented 0.6 billion euro over the same period. The amount of unrealised gains on the investment portfolio, which amounted to 7.6 billion euro at the end of 2002, dropped to around 6.6 billion euro at the end of September 2003, or approximately 2.9 p.c. of the total value of that portfolio.

Intermediation activities

The decline in the net interest income of Belgian credit institutions in 2003 is in stark contrast to the almost constant expansion of this income category in the preceding years. This turnaround is due to the erosion of the intermediation margin earned by these institutions, down from 137 basis points in 2002 to 132 basis points in the fi rst nine months of the year under review, whereas the movement in interest-bearing assets and liabilities seems to have played a neutral role overall.

Examination of the balance sheets of Belgian banks over a longer period shows that the main contribution to the increase in the total came from loans on the assets side and deposits on the liabilities side. These virtually doubled between 1995 and 2003, the growth partly refl ecting the international expansion of some Belgian banks and the accompanying enlargement of their scope of consolidation. However, the increase in other items, namely securities

TABLE 44 NON-INTEREST INCOME OF BELGIAN CREDIT INSTITUTIONS (1)

(Consolidated data, percentage changes compared to the corresponding period of the previous year, unless otherwise stated)

Sources : BFC, NBB.(1) Including the results of the Belgian branches of foreign banks, on a territorial basis.(2) These figures were adjusted for the impact of the removal of Dexia BIL from the scope of consolidation of Dexia Bank Belgium.(3) Mainly income from leasing activities.

First nine months p.m.Results for 2002, billions of euros

2000 2001 2002 2002 2003 (2)

Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.0 –4.0 –9.0 –8.4 0.3 7.3

Net realisation of capital gains on the investment portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –46.6 43.5 –5.4 15.0 16.3 1.2

Net results of trading and exchange activities . . . 181.6 –8.3 –40.0 –51.0 37.9 1.1

Other income (3) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 –2.2 –3.1 3.8 –27.8 2.4

Non-interest income . . . . . . . . . . . . . . . . . . . . . . 28.5 –1.2 –11.7 –10.4 –0.1 12.0

117

FINANCIAL STABILITY

and especially interbank claims and liabilities, was much more modest. That disparity is probably a sign that the banks are trying to curb the growth of their balance sheet, e.g. by cutting down on transactions with a low interme-diation margin, in order to augment their total return.

At fi rst sight, the erosion of the intermediation margin in 2003 appears surprising, as there were two impor-tant factors which should have boosted it. First, the banks continued to increase the commercial margins on their loans, as is evident in particular from the Credit Observatory established at the Bank since 2002, and from the fi rst results of the new harmonised interest rate survey recently launched by the Eurosystem. Also, the downward shift in the yield curve in 2003 was in principle favourable to the banks’ intermediation activity. The reason is that a general decline in interest rates cuts the cost of liabilities sooner than it reduces the return on assets, which have a longer average maturity, although the opportunity to record capital gains did encourage some banks to bring forward the date of realisation of some of their long-term assets. The discrepancy is even more marked when, as happened in 2003, short-term rates fall more sharply than long-term rates.

However, these factors supporting the intermediation margin were more than offset by other effects. First, the decline in short-term rates, which fell to an all-time low, greatly reduced the ‘endowment’ effect corresponding to the large margin that banks traditionally make on the por-tion of their sight deposits on which practically no interest is paid. In addition, hedging operations affected the inter-mediation margin to a greater extent than in recent years. Belgian banks hedge part of the interest rate positions resulting from their maturity transformation function, and for that purpose they use exchange rate swaps, on which they pay a fi xed long-term rate of interest and receive in return a variable short-term rate. If money market rates decline, as happened in 2003, the amounts received on these contracts are lower, without any corresponding change in the amount payable. Without these hedging transactions, the margin would have risen from 145 basis

TABLE 45 PORTFOLIO OF BELGIAN CREDIT INSTITUTIONS (1)

(End-of-period consolidated data, percentages of the total portfolio)

Sources : BFC, NBB.(1) Including the data relating to Belgian branches of foreign banks, on a territorial basis.

1996 1999 2002 September 2003

Investment portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 91 82 78

Belgian government securities . . . . . . . . . . . . . . . . . . . . . . . . 58 38 26 23

Foreign government securities . . . . . . . . . . . . . . . . . . . . . . . . 12 21 26 29

Fixed-income securities issued by enterprises . . . . . . . . . . . . . 21 30 29 25

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 1 1

Trading portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9 18 22

1999 2000 2001 2002 2003 (2)

0

2

4

6

8

10

0

1

2

3

4

5

6

CHART 85 GAINS ON THE INVESTMENT PORTFOLIO OF BELGIAN BANKS (1)

(Consolidated data, billions of euro, unless otherwise stated)

Sources : BFC, NBB.(1) Including data for the Belgian branches of foreign banks, on a territorial basis.(2) Figures for the first nine months. In the case of net realisation of capital gains,

data based on realisations in the first nine months extrapolated to the full year.

(right-hand scale)

Unrealised capital gains on the investment portfolio (outstanding amount at end of period) (left-hand scale)

Ten-year interest rate (benchmark government bond) (end-of-period, p.c.)

Net realisation of capital gains on the investment portfolio

118

TABLE 46 DETERMINANTS OF INTEREST INCOME OF BELGIAN CREDIT INSTITUTIONS (1)

(Consolidated data, indices 1995 = 100, unless otherwise stated)

Sources : BFC, NBB.(1) Including Belgian branches of foreign banks.(2) Figures adjusted for the impact of the removal of Dexia BIL from the scope of consolidation of Dexia Bank Belgium.(3) Annualised data based on the first nine months.

Net interest income

Intermediationmargin

Intermediation margin excluding the results

of hedging operations (basis points)

Interest-bearingassets

Interest-bearingliabilities

1995 . . . . . . . . . . . . . . . . . . . . . . . 100.0 129 135 100.0 100.0

1996 . . . . . . . . . . . . . . . . . . . . . . . 111.6 136 147 107.9 108.1

1997 . . . . . . . . . . . . . . . . . . . . . . . 110.0 121 126 118.6 118.6

1998 . . . . . . . . . . . . . . . . . . . . . . . 118.0 124 128 123.6 123.4

1999 . . . . . . . . . . . . . . . . . . . . . . . 130.5 130 138 132.3 132.6

2000 . . . . . . . . . . . . . . . . . . . . . . . 134.4 127 127 140.6 141.4

2001 . . . . . . . . . . . . . . . . . . . . . . . 140.5 135 138 144.2 146.9

2002 . . . . . . . . . . . . . . . . . . . . . . . 145.1 137 145 145.8 148.0

First nine months

2003 (2) . . . . . . . . . . . . . . . . . . . . . 139.8 (3) 132 146 145.0 145.9

TABLE 47 COMPOSITION OF THE BALANCE SHEET OF BELGIAN CREDIT INSTITUTIONS (1)

(Consolidated data, indices 1995 = 100)

Sources : BFC, NBB.(1) Including Belgian branches of foreign banks.(2) Figures adjusted for the impact of the removal of Dexia BIL from the scope of consolidation of Dexia Bank Belgium.(3) Sum of the investment and trading portfolios.(4) Bank bonds, certificates of deposit and bonds.

1999 2000 2001 2002 September2003 (2)

p.m.Percentageof the total(end 2002)

Interbank assets . . . . . . . . . . . . . . . . . . . . . . . . . 102.3 103.1 99.2 104.6 102.3 25.6

Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153.3 172.4 185.4 190.1 190.3 45.4

Securities (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143.9 148.4 150.0 143.3 143.1 29.0

Total interest-bearing assets . . . . . . . . . . . . . . . . 132.3 140.6 144.2 145.8 145.0 100.0

Interbank liabilities . . . . . . . . . . . . . . . . . . . . . . . 122.6 125.9 121.8 112.3 103.1 31.1

Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153.8 168.3 181.9 195.0 202.0 51.3

Securities (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.9 111.8 118.7 118.0 111.0 14.7

Subordinated debts . . . . . . . . . . . . . . . . . . . . . . . 180.8 223.3 257.8 262.6 254.1 2.9

Total interest-bearing liabilities . . . . . . . . . . . . . . 132.6 141.4 146.9 148.0 145.9 100.0

119

FINANCIAL STABILITY

points in 2002 to 146 basis points in the fi rst nine months of 2003.

This fi nding confi rms that the profi tability of the banks can only be analysed by taking due account of the risks associated with their transactions. This concerns not only interest rate risks but also credit risks.

The steep rise in downward value adjustments was one of the main causes of the decline in Belgian banks’ profi ts in 2002. Although these costs diminished during the fi rst three quarters of 2003, the absolute amounts were still high. Furthermore, they give only a very inaccurate

indication of the levels likely to be reached for the year as a whole, as a substantial part of the value adjustments is traditionally recorded in the fourth quarter. In addi-tion, the decline is due solely to the movement in value adjustments to securities, especially equities. In 2002 these had represented almost half a billion euro, but the stock market rally obviated the need to record any further reductions on this component of the assets. In contrast, the value adjustments on loans increased further, confi rm-ing that credit risks continued to materialise during this phase of weak growth.

Bancassurance activities

The collapse in share prices in the past few years had a serious impact on the conditions for the pursuit of banc-assurance activities. It led to a sharp fall in the fi nancial results which, as a percentage of net premiums, slumped from 56 p.c. in 1998 to barely 2 p.c. in 2002. At the same time, although they did recover, the results of the actual insurance operations continued to show a defi cit.

0

1

2

3

4

5

6

7

0 5 10 15 20

100

150

200

250

2002 2003100

150

200

250

0

1

2

3

4

5

6

7

CHART 86 YIELD CURVE

Source : NBB.(1) Monthly averages of the reference interest rates on the secondary market in

treasury certificates issued by the Belgian government for maturities of up to one year and of bonds for other maturities.

Maturity (in years)

September 2003

September 2002

Average 1995-2002

INTEREST RATE SPREAD BETWEEN TEN-YEARGOVERNMENT BONDS AND THREE-MONTH EURIBOR(Daily data, basis points)

INTEREST RATES (1)

(Percentages)

1995 1997 1999 2001 2003

0,2

0,1

0,0

–0,1

–0,2

–0,3

–0,4

–0,5

–0,6

–0,7

5,5

5,0

4,5

4,0

3,5

3,0

2,5

2,0

CHART 87 RESULTS OF HEDGING TRANSACTIONS BY BELGIAN BANKS (1)

(Half-yearly consolidated figures)

Sources : BFC, NBB.(1) Including the results of Belgian branches of foreign banks, on a territorial basis.(2) The result of hedging transactions for the second half of 2003 was estimated on

the basis of the third-quarter figures.(3) Average reference rates on the secondary market in three-month treasury

certificates issued by the Belgian State.

Results of hedging transactions (2)

(billions of euro) (left-hand scale)

Short-term interest rate (3)

(right-hand scale)

120

Although it is quite common to offset the fi nancial results against the insurance results, in view of the time lag between the collection of premiums and the payment of compensation, this practice became particularly important during the second half of the 1990s; thus, the operating defi cit before fi nancial results of insurance enterprises had increased to around 30 p.c. of total net premiums in 1998.

However, the decline in investment income prompted companies to revise the terms applied to many of their contracts and match the rates more closely to the risks, so that the insurance results recovered. In 2002, the defi cit for this component of the operating results had fallen to 4 p.c. of net premiums.

The price revisions combined with a reduction in the number of companies operating on the Belgian market, down from over 250 in 1996 to 189 in 2003, substantially modifi ed the supply conditions in a number of branches, such as motor insurance. Moreover, in 2003 this devel-opment led to the establishment of the Insurance Rates Offi ce, which aims to set premiums and insurance terms for drivers who are unable to obtain insurance on the market, or only at a very high premium. The offi ce entrusts the management of these risks to specifi c insurancecompanies, while any losses are borne by all companies offering motor insurance.

In the absence of data for the year under review, only indirect indicators are available for the recent movement in the results of insurance enterprises. An approximate calculation based on a fi nancial asset portfolio with a comparable structure to that of the portfolio of the Belgian insurance sector as a whole confi rms that the return made by those companies on their investments increased considerably in 2003. However, there are dis-crepancies between that return indicator and the fi nancial results, due essentially to the method whereby changes in the value of securities held by insurance companies are recorded in the results. The profi t and loss accounts show only the realised capital gains and losses, and any unreal-ised capital losses which are durable in character. When the prices of securities are rising, as they were towards the end of the 1990s, and again in 2003, capital gains are only partly refl ected in the results, namely for the amount of the gains actually realised. Conversely, when markets are falling, the latent capital losses may only be recorded after a certain delay, when they have been confi rmed over a suffi ciently long period.

As regards the recent trend in insurance results in the strict sense, the only qualitative information available is that supplied by the quarterly reports published by the main enterprises in the sector. On the basis of these indicators, it seems reasonable to infer that the consoli-dation of the insurance results should have continued in 2003, especially in the non-life branch.

1994 1996 1998 2000 2002 2001 2002 2003

2,5

2,0

1,5

1,0

0,5

0,0

–0,5

2,5

2,0

1,5

1,0

0,5

0,0

–0,5

CHART 88 VALUE ADJUSTMENTS BY BELGIAN BANKS (1)

(Consolidated data, billions of euro)

Sources : BFC, NBB.(1) Including the results of Belgian branches of foreign banks, on a territorial basis.

Value adjustments on loans

Value adjustments on securities

First nine months

121

FINANCIAL STABILITY

Insurance companies’ high degree of sensitivity to stock market movements prompted these companies to revise their investment strategy. In the second half of the 1990s, the relative weight of equities was sharply stepped up. While that increase was due partly to the rising prices, it was also the result of a strategy of diversifi cation, companies having reduced their bond portfolio, which was structurally much larger than in the other euro area countries. More recently, a number of institutions have reverted, selling equities in favour of bonds. However, the latter asset category also exposes insurance enterprises to the risk of capital losses. Thus, the rise in long-term interest rates in the third quarter of 2003 reduced the latent capital gains on bond portfolios.

However, in the longer term the rise in bond rates should have a benefi cial effect for life insurance companies, as their maturity structure is in fact opposite to that of the banks, with the average maturity of their liabilities exceeding that of their assets. If interest rates were to rise, the capital gains resulting from the fall in the discounted value of their liabilities would therefore exceed the capital losses on their bond portfolios. In addition, higher interest rates

place the companies in a better position to insure the returns which are guaranteed on a large proportion of life insurance contracts.

These guaranteed returns, which have to be covered by investment income, were originally subject to a limit of 4.75 p.c. In 1999, this statutory maximum was reduced to 3.75 p.c. and, more recently, insurance companies have, on their own initiative and prompted by the persistent decline in long-term interest rates, again reduced their rates to between 2.75 and 3.25 p.c. However, the return of 4.75 p.c. still applies to all premiums paid under con-tracts concluded before 1999.

The declining profi tability of insurance enterprises in recent years was refl ected in the sector’s solvency ratio. Expressed as a proportion of the minimum requirements, the regulatory capital declined between 1998 and 2002 from 394 to 285 p.c. in the non-life branch, and from 275 to 236 p.c. in the life branch.

Although the margin is still substantial compared to the minimum requirements, it must be pointed out that this solvency ratio in fact consists of two components. Apart

1996 1997 1998 1999 2000 2001 2002 2003–40

–20

0

20

40

60

80

–10

–5

0

5

10

15

20

CHART 89 DETERMINANTS OF THE RESULTS OF INSURANCE COMPANIES

(Percentages of net premiums, unless otherwise stated)

Sources : ISO, Thomson Financial Datastream, NBB.(1) Corresponds to the balance of the technical accounts of life and non-life

insurance activities, excluding financial results.(2) Includes the total net investment income.(3) Includes, besides the financial and insurance results, also the balance of other

residual transactions.(4) Return in per cent of the outstanding amount of a notional portfolio comparable

in structure to that of Belgian insurance companies.

Insurance result (1)

Financial result (2)

Net result (3)

(left-hand scale)

Return on a standard portfolio(right-hand scale) (4)

1996 1997 1998 1999 2000 2001 2002 20030

50

100

150

200

250

300

0

50

100

150

200

250

300

CHART 90 NUMBER OF INSURANCE COMPANIES ESTABLISHED IN BELGIUM, BY SPECIALISATION (1)

(End-of-period data)

Source : ISO.(1) These figures include both Belgian and foreign companies.

Total

Active in life insurance only

Active in non-life insurance only

Active in both life and non-life insurance

122

from the capital and reserves recorded on the balance sheet, which form the explicit component of the ratio, there is also an implicit component. With the consent of the supervisory authorities, insurance companies can in fact include additional elements in their regulatory own funds. This mainly concerns surpluses resulting from the under-valuation of assets or the over-valuation of liabili-ties, in so far as they are not exceptional in character.

The life branch, which traditionally has lower solvency ratios than the non-life branch, is the one which has made most use of this right to use implicit own funds. At the end of 2002, this component accounted for almost 45 p.c. of the solvency ratio.

During the fi rst nine months of 2003, the solvency ratio edged upwards, judging by what happened in the case of the four large bancassurance groups operating on the Belgian market. The periodic fi gures published by these four institutions indicate that the solvency ratio of the insurance branch increased from 211 p.c. at the end of 2002 to 224 p.c. at the end of September 2003.

However, the information which these same groups dis-close to the market on their profi tability does not provide an insight into the respective developments in their bank-ing and insurance activities. The total return on equity, taking all activities together, increased from 13.7 p.c. in 2002 to 16.5 p.c. after the fi rst nine months of 2003.

9.3 Institutional organisation of prudential supervision

In response to the globalisation and internationalisation of the fi nancial markets, in 2003 the supervisory authorities continued their efforts to establish supervision structures better suited to the new environment. These various initiatives concerned both the regulatory framework and the practical implementation of supervision; they aimed to integrate the microprudential and macroprudential dimensions and took place in parallel at national and international level.

Work of the Basle Committee on Banking Supervision

The Basle Committee on Banking Supervision (BCBS) continued its work which is intended to culminate in the conclusion of an agreement on the solvency standards for banks. To that end, the Committee carried out a third study on the impact of the new rules for calculat-ing capital requirements. That study, whose conclusions were published in May 2003, covered 43 countries, so that its scope extended far beyond just the institutions based in countries represented in the BCBS. The results appeared to be largely in line with the general aims of the Committee, which wants the new solvency standards to be much more sensitive to the risks actually incurred by

1996 1998 2000 2002 2003 (1)0

20

40

60

80

100

1998 2000 2002 2003 (1)0

20

40

60

80

100

CHART 91 COMPOSITION OF THE FINANCIAL ASSETS OF INSURANCE COMPANIES ESTABLISHED IN BELGIUM AND IN THE EURO AREA

(Percentages of the total financial assets)

Sources : ECB, NBB.(1) Data at the end of June.

BELGIUM EURO AREA

OtherLoansUCIsEquitiesBonds

123

FINANCIAL STABILITY

individual institutions while at the same time not leading to a general increase in capital requirements for the bank-ing sector as a whole. That point applies in particular to the large Belgian banks, which could reduce their capital requirements to some extent by using internal risk man-agement models.

At the same time, the Basle Committee held regular con-sultations with the sector to ensure that it had the support of the fi nancial community. Taking account of the com-ments received in response to its third consultation docu-ment, the Committee proposed certain changes to the method of calculating the requirements for securitisation operations, the treatment of credit card liabilities and the treatment of certain credit risk reduction techniques. In particular, it modifi ed the respective treatment of expected and unexpected losses in the approaches based on the internal risk management models of the banks.

This last change has some signifi cant implications. From now on, the capital requirements will be calculated only by reference to unexpected losses, as in principle, expected losses should be covered by the provisions. Any excess or defi cit in the provisions in relation to the level of losses expected, as measured by the banks’ internal models, will within certain limits be included in – or con-versely, deducted from – the regulatory capital.

TABLE 48 PROFITABILITY AND SOLVENCY OF THE FOUR LARGE BANCASSURANCE GROUPS ACTIVE ON THE BELGIAN MARKET (1)

(Percentages)

Sources : Dexia, Fortis, ING, KBC, NBB.(1) Dexia, Fortis, ING, KBC.(2) Net result after tax as a percentage of own funds.(3) End-of-period ratio between own funds and risk-weighted assets, as defined by

the Basle Committee on Banking Supervision.(4) Coverage ratio corresponding to the available solvency margin in relation to the

minimum required solvency ratio.

Profitability (2) Solvency

Bankingactivity (3)

Insuranceactivity (4)

1998 . . . . . . . . . . . . . . . . 13.7 11.6 326

1999 . . . . . . . . . . . . . . . . 15.9 12.0 307

2000 . . . . . . . . . . . . . . . . 16.8 12.1 261

2001 . . . . . . . . . . . . . . . . 17.1 12.6 231

2002 . . . . . . . . . . . . . . . . 13.7 12.1 211

First nine months

2003 . . . . . . . . . . . . . . . . 16.5 12.1 224

1996 1997 1998 1999 2000 2001 20020

50

100

150

200

250

300

350

400

1996 1997 1998 1999 2000 2001 20020

50

100

150

200

250

300

350

400

0

50

100

150

200

250

300

350

400

1996 1997 1998 1999 2000 2001 20020

50

100

150

200

250

300

350

400

CHART 92 EXPLICIT AND IMPLICIT SOLVENCY MARGIN OF INSURANCE COMPANIES (1)

(Percentages of the required solvency margin)

Source : ISO.(1) The explicit part of the margin consists mainly of items recorded on the balance sheet. The implicit part includes, subject to the ISO’s approval, the surpluses resulting from the

undervaluation of assets and overvaluation of liabilities.

Implicit margin

Explicit margin

SOLVENCY MARGIN : NON-LIFESOLVENCY MARGIN : LIFEOVERALL SOLVENCY MARGIN

124

As this last modifi cation could lead to the recalibration of certain parameters in the internal model-based approach, the Committee set up an additional consultation on this specifi c point. However, the new accord is still scheduled to take effect at the end of 2006.

Despite the importance attached to the parameters for calculating the new capital standards, one should bear in mind that these are only the fi rst pillar of the Basle Committee’s work. A second pillar concerns the taking into account by the prudential authorities of the specifi c risk profi le of each institution, more particularly in the case of risks not covered by the fi rst pillar, such as the interest rate risk. This individual approach to supervision implies that special attention must be paid to the actual arrangements for implementing the new accord, which will also need to be transposed into the various national laws. Analysis of these implementation questions came increasingly to the fore in 2003, and was conducted more particularly by a specialist BCBS working group, the Accord Implementation Group (AIG).

The third pillar aims to supplement the regulations and prudential supervision with market discipline. In order to allow the latter to play its role, the new accord will specify that credit institutions must supply the market with the information required to guarantee greater transparency concerning the nature of their activities and their risk pro-fi le. However, the Basle Committee has made sure that these requirements are not incompatible with those stipu-lated by the bodies responsible for developing account-ing standards. That concern together with the potential impact of the new international standards on the calcula-tion of capital requirements prompted the Committee to become involved in the debate on the introduction of the new international accounting standard, the IAS.

This reference system is intended to ensure better inter-national comparability of accounting schemes, both at EU level, in order to contribute towards the creation of an integrated fi nancial market, and between the EU and other major fi nancial centres, to make it easier for enterprises to access the international capital markets. However, this harmonisation work has to take into account numerous constraints, since the accounting information has to meet very different needs. First, it must satisfy the requirements of diverse users, such as management, shareholders, creditors, rating agencies, supervisory bodies and the general public. It must also be applicable to very different branches of activity, such as industrial enterprises or commercial fi rms, banks and insurance companies. Finally, beyond the basic micro-economic objective of supplying appropriate information on the individual enterprises, it must also take account of

the macroeconomic effects that an accounting system may have on market volatility, or on credit mechanisms.

These problems arise more particularly for the application of the concept of fair value to fi nancial instruments, covered by the IAS 39 standard. While it is recognised that the general application of valuation at historical cost no longer meets the current needs of the fi nan-cial markets, a number of market operators and public institutions, including the ESCB, wished to warn against the potential implications of widespread application of a valuation method based on fair value for the operation and stability of the fi nancial system.

For its part, the Basle Committee made a number of specifi c proposals to the International Accounting Standards Board (IASB), the body responsible for developing the new system, concerning the method of creating provisions for bad debts and the conditions for applying the concept of fair value. The IASB has partly responded to those concerns.

The Committee is still in active consultation with the IASB on the unresolved issues, and has also indicated that a number of the remaining points of uncertainty could be dealt with by recommendations made by the Committee itself or by the national prudential authorities.

Financial Services Action Plan

Regulatory work also continued in the EU. The Brussels European Council of March 2003 set April 2004 as the deadline for adopting the legislative proposals contained in the Financial Services Action Plan, which aims to create an integrated fi nancial market by 2005. Some of those measures were adopted in 2003, in particular the directive on institutions for occupational retirement provision, the directive amending earlier directives on the annual and consolidated accounts of certain types of companies, banks and insurance undertakings, and the directive on prospectuses.

Moreover, the negotiations on certain other measures under the Action Plan are far advanced. This concerns the directive on the markets in fi nancial instruments, the directive on take-over bids and the one on transparency.

It is vital that the technical provisions for implementing these European directives should permit prompt and fl exible adaptation in line with technological innovations and the constantly evolving markets. At the same time, the integration of fi nancial services in Europe means that the supervisory authorities must cooperate more closely

125

FINANCIAL STABILITY

in order to ensure greater convergence in their practices. To that end, in November 2003 the EC submitted a pro-posal for a directive aiming to extend to the banking and insurance sector the architecture which the Committee of Wise Men chaired by Baron Lamfalussy had advocated for the securities market. That proposal implies a reorgani-sation of the committees responsible for the regulation and supervision of fi nancial services. A fi rst set of com-mittees, with a regulatory character, would have the task of advising the EC on the preparation of the legislation and assisting it in the exercise of its executive powers. A second series of committees, with a prudential character, would have the task of promoting the convergence of routine supervision practices, increasing the exchange of confi dential information on the institutions supervised, and providing technical advice for the EC.

Macroprudential supervision and new institutional links between the Bank and the BFIC

While it is vital to step up the coordination of regulation and supervision at the microprudential level, fi nancial stability must also be promoted from a macroprudential perspective. Apart from the prevention of inadequacies in individual institutions, it is in general equally important to guard against the development of situations which hamper credit institutions and the fi nancial markets as a whole in the performance of their essential functions in the allocation of fi nancial resources.

This second task is directly in line with the traditional func-tions of central banks, as the implementation of monetary policy requires, at conceptual level, the development of expertise in analysing the interactions between the real and fi nancial spheres of the economy. In operational terms, it requires the existence of a stable and effi cient banking and fi nancial system, capable of promptly transmitting monetary policy signals to the economy in general.

The increasing integration of the fi nancial markets has high-lighted the importance of macroprudential supervision. On the one hand, integration has led to the emergence of large groups which, by pursuing activities in a number of countries and fi nancial markets, could engender contagion processes. On the other hand, the ever closer links between markets enable operators to react much faster to common sources of information. That increases the risks associated with group behaviour, whereby strategies which are justifi ed for individuals trigger market shocks when adopted simultaneously by a large number of institutions.

To demonstrate the importance which they attach to fi nancial stability, a growing number of central banks are publishing specifi c reviews on this subject. That applies in particular to the Bank, which in 2003 published the second issue of its Financial Stability Review. With the support of the Banking Supervision Committee (BSC), the ECB also launched a similar publication in 2003. That initiative confi rms the role performed by the BSC for several years now in the coordination of macroprudential supervision at European level.

In Belgium, the authorities have taken full account of the various developments in the international prudential architecture while remodelling the institutional framework for the supervision of the Belgian fi nancial sector.

This reform was outlined by the Law of 2 August 2002 on the supervision of the fi nancial sector and on fi nancial services. It should be remembered that the law, which explicitly recognised the Bank’s macroprudential role, paved the way for a merger between the two institutions responsible for the supervision of banks and insurance companies respectively, and provided for close cooperation between the Bank and the microprudential authorities.

This new institutional architecture was progressively imple-mented in 2003. A Royal Decree of 25 March regulated the merger of the BFC and the ISO to form a new body, the Banking, Finance and Insurance Commission (BFIC), which came into operation on 1 January 2004. Close links have been established at several levels between this new body and the Bank.

The BFIC ‘s board of directors now includes, among its seven members, three members of the Bank’s Board of Directors, while a new body comprising the boards of the two institutions and chaired by the Governor of the Bank, the Financial Stability Committee (FSC), is responsible for examining questions of mutual interest, such as the general stability of the fi nancial system, the coordination of crisis management and the supervision of fi nancial conglomerates or the management of joint activities.

The FSC met three times in 2003 and adopted three prior-ity objectives, namely the defi nition of the conditions for collaboration and the exchange of information between the BFIC and the Bank in the event of a fi nancial crisis, the launch of an action programme at national level, to guarantee the continuity of fi nancial market operations (business continuity planning), and the coordination of the IMF mission to be carried out in Belgium in 2004 and 2005 under its Financial Sector Assessment Programme. That programme, launched in 1999, aims to conduct a

126

systematic examination of the soundness of the fi nancial systems of the Member States. At the end of 2003, the assessment had been completed for 59 countries, while work was still in progress in 29 others, and 15 countries, including Belgium, had agreed to submit to an assessment in the near future.

In addition, a new supervisory board has been set up at the BFIC, which includes three members of the Bank’s Council of Regency. An umbrella body, the Financial Services Authority Supervisory Board, which includes members of both aforementioned councils has been given an advisory role in the fi eld of fi nancial stability.

Finally, a protocol prepared by the FSC and approved by Royal Decree specifi ed the areas in which the Bank and the BFIC will pool their resources, and the procedures for doing so. This mainly concerns prudential policy, the treatment of the periodic information supplied by institutions subject to supervision, information systems, documentation and equipment and general services. In addition, there will be closer cooperation on legal matters and microeconomic information, as well as between the oversight functions which the Bank exercises over securi-ties payment and settlement systems, on the one hand, and the prudential powers of the BFIC in regard to the institutions managing those systems on the other hand.

TABLE 49 NEW ORGANISATIONAL STRUCTURE OF THE EU COMMITTEES RESPONSIBLE FOR FINANCIAL SERVICES

(1) In the field of financial conglomerates, a regulatory committee, the Financial Conglomerates Committee (FCC) was also set up in 2003 but without an associated prudential committee.

Sectors (1)

Banks Insurance and occupational pensions Securities markets (including UCIs investing in securities)

Functions

Regulatory committees European Banking Committee (EBC)

European Insurance and Occupational Pensions Committee (EIOPC)

European Securities Committee (ESC)

Prudential committees Committee of European Banking Supervisors (CEBS)

Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS)

Committee of European Securities Regulators (CESR)

127

METHODOLOGICAL NOTE

Methodological note

Unless otherwise indicated, when data are compared from year to year, they all relate to the same period of the years in question.

In the tables, the totals shown may differ from the sum of the items owing to rounding.

In order to describe the development of various important economic data relating to Belgium in the year 2003 as a whole, it was necessary to make estimates, as the statistical material for that year is inevitably still very fragmentary. In the tables and charts these estimates, for which the cut-off date was January 2004, are marked “e”. They represent mere orders of magnitude intended to demonstrate the main trends which already seem to be emerging. For the years prior to 2003, the data in the Report are those of the offi cial national accounts. On the other hand, the comments on the international environment and the international comparisons are based on data from international institutions, which for the year under review were closed a few months earlier.

The monetary unit used in the Report for the data concerning Belgium or the other countries of the euro area is the euro, since, on 1 January 1999, it became the currency of all these countries except Greece, for which it replaced the national currency on 1 January 2001. The amounts relating to the periods prior to its introduction are converted at the irrevocable euro conversion rates. The euro area is defi ned in this Report as consisting of the twelve EU countries which adopted the single currency. Apart from Belgium, the area consists of Austria, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. For convenience, the term “euro area” is also used to designate this group of countries for periods prior to the start of Stage 3 of EMU.

Since 1999, the NAI, in accordance with the obligation imposed by Eurostat, has applied the ESA 95 methodology for compiling the national accounts, instead of the ESA 79 methodology. This new system gives a more accurate and complete picture of economic developments (1). It also provides a better guarantee of the international comparability of the macroeconomic data.

As far as possible, the Report incorporates the new defi nitions and methods resulting from ESA 95. However, it still expresses the data in gross terms, as under the ESA 79, although the new system presents the main aggregates derived from the national accounts in the form of net results for consumption of fi xed capital. Gross data have the advantage of reducing the problem connected with the valuation of depreciation, which is based on the assumption of perfect knowledge of the stock of fi xed capital. Furthermore, gross data make it easier to interpret certain movements such as

(1) For fuller information concerning the new system of national accounts according to ESA 95, see the NAI publication entitled Comptes nationaux 1998 – Partie 1 : Estimation des agrégats annuels. The changes caused by the switch to this new system for the account of general government are specifi ed in more detail in another publication from the same source, entitled Comptes nationaux 1998 – Partie II : Comptes des administra-tions publiques.

128

those of the gross operating surplus. For similar reasons, the sectoral breakdown groups together, under the heading “individuals”, households and non-profi t institutions serving households, which constitute separate sectors according to the ESA 95 methodology. Nevertheless, the terms “individuals” and “households” are used as synonyms.

The Belgian public radio and television broadcasting companies are included in the non-fi nancial corporations sector until 2001, and in the general government sector from 2002 onwards. Where this change of sector has a signifi cant impact on the movement in a key aggregate between those two years in any tables in the Report, its infl uence is mentioned in a footnote. This change of sector is due to the Lambermont agreement in Belgium, which modifi ed the funding of the regions and communities. Under this agreement, the radio and television licence fee is collected by the regions, instead of by the communities, from 2002 onwards. A detailed presentation of how the change affects the various national accounts aggregates was supplied as an annex to the article The Belgian economy in 2002 in the Bank’s Economic Review for the second quarter of 2002.

In the chapter devoted to the international environment, the presentation has also been adapted to the introduction of ESA 95 or its equivalent, the United Nations System of National Accounts (SNA 1993). The new methodology is now very widely used in the sources to which reference is made in the Report, principally the EC and the OECD. Nevertheless, the statistics which they supply have still not been made completely uniform, because a number of countries have yet to initiate or complete the transition to ESA 95 or SNA 1993. Furthermore, the period for which the conversion of the national accounts from one system to the other has been carried out still varies greatly from one country to another.

Since the introduction of the euro, the chapter devoted to Belgium’s balance of payments has been dropped. In the euro area the changes in the fi nancial fl ows between Belgium and the other member countries have hardly any signifi cance for monetary policy and the determination of the euro exchange rate. On the one hand, the allocation of the fi nancial resources emanating from economic agents with a savings surplus to economic agents with a defi cit is no longer determined in the euro area by expectations concerning exchange rates, or by interest rate differentials due to the existence of several currencies subject to independent monetary and foreign exchange policies. On the other hand, the use of a single currency leads to integration of the fi nancial markets and intensifi cation of the fi nancial fl ows between the countries of the euro area.

However, the report still contains comments on Belgium’s current and capital account balance of payments transactions. They provide indications on any fundamental disequilibria which might be confronting the Belgian economy, especially as regards competitiveness. Furthermore, the development of Belgium’s fi nancial position vis-à-vis the rest of the world, that is, the net accumulation of claims on foreign countries, is determined, all other things remaining equal, by the balance of its current and capital transactions with the rest of the world.

The breakdown of the fi nancial accounts between individuals and companies is largely based on the data from credit institutions. The information making it possible to break down the other fi nancial transactions of the private sector, especially transactions with foreign countries or purchases of securities, is much more fragmentary. The main statistics which can be used for this purpose, namely the globalisation of the annual accounts of enterprises compiled by the Bank’s Central Balance Sheet Offi ce, are in fact partial, are produced only annually and are available only after a time-lag of several months. It has therefore been necessary to introduce some assumptions and make various estimates.

129

METHODOLOGICAL NOTE

Conventional signs

– the datum does not exist or is meaninglessn. not availablep.c. per centp.m. pro memoriae estimate by the Bank

List of abbreviations

AIG Accord Implementation Group

BBA British Bankers’ AssociationBEA Bureau of Economic AnalysisBEPG Broad Economic Policy GuidelinesBFC Banking and Finance CommissionBFIC Banking, Finance and Insurance CommissionBIPST Belgian Institute of Postal Services and TelecommunicationsBIS Bank for International SettlementsBITC Brussels Intermunicipal Transport CompanyBLEU Belgian-Luxembourg Economic UnionBLS Bureau of Labor StatisticsBNRC Belgian National Railway CompanyBREO Brussels Regional Employment Offi ceBSC Banking Supervision Committee

CCE Central Council for the EconomyCEBS Committee of European Banking SupervisorsCEC Exchange centre for transactions to be settled in the Belgian fi nancial systemCEIOPS Committee of European Insurance and Occupational Pensions SupervisorsCESR Committee of European Securities RegulatorsCIK Securities Deposit and Clearing Offi ce of the Financial SectorCLS Continuous Linked Settlement

130

CMCO Central Mortgage Credit Offi ceCMF Conseil des marchés fi nanciers (Financial markets board)COMECON Council for Mutual Economic AssistanceCPSS Committee on Payments and Settlement SystemsCSD Central Securities Depositary

Dimona Immediate declaration of employmentDmfa Multi-functional declaration

EBRD European Bank for Reconstruction and DevelopmentEBC European Banking CommitteeEC European CommissionECB European Central BankECOFIN European Council of Ministers of Economic Affairs and FinanceEGCB Electricity and Gas Control BoardEGRB Electricity and Gas Regulation BoardEIOPC European Insurance and Occupational Pensions CommitteeELLIPS Electronic Large-value Interbank Payment SystemEMBI Emerging Market Bond IndexEMU Economic and Monetary UnionERM European Exchange Rate MechanismESA European System of AccountsESC European Securities CommitteeESCB European System of Central BanksEU European Union

FDIC Federal Deposit Insurance CorporationFedergon Federation of partners for employmentFISIM Financial intermediation services indirectly measuredFOREM Offi ce communautaire et régional de la formation professionnelle et de l’emploi

(Community and regional vocational training and employment offi ce)FPB Federal Planning BureauFSC Financial Stability Committee

G 7 Group of SevenG-1O Group of TenGDP Gross domestic productGNI Gross national incomeGNP Gross national product

HICP Harmonised Index of Consumer PricesHWWA Hamburgisches Welt-Wirtschafts-Archiv

IAS International Accounting StandardsIBRD International Bank for Reconstruction and DevelopmentICSD International Central Securities DepositaryICT Information and communication technologiesIFAG International Financial Action GroupIFRS International Financial Reporting StandardIMF International Monetary FundIOSCO International Organisation of Securities CommissionsISM Institute for Supply ManagementISO Insurance Supervision Offi ce

131

METHODOLOGICAL NOTE

MEA Federal Ministry of Economic AffairsMEL Federal Ministry of Employment and LabourMFI Monetary Financial InstitutionMTS Mercato telematico dei titoli di Stato

NACE Statistical nomenclature of economic activities in the European CommunityNAI National Accounts InstituteNAIRU Non-accelerating infl ation rate of unemploymentNAS National Accounting SystemNBB National Bank of BelgiumNCB National Central BankNEMO National Employment Offi ceNIESR National Institute for Economic and Social ResearchNSDII National Sickness and Disability Insurance InstituteNSI National Statistical InstituteNSSO National Social Security Offi ce

OECD Organisation for Economic Co-operation and DevelopmentOLO Linear bondOPEC Organisation of Petroleum Exporting Countries

P/E Price/earnings ratioPLU Professional Lenders’ UnionPRICAF Private closed-end equity fundPSAC Public Social Assistance CentrePUI Professional Union of Insurers

RPIX Retail price index excluding mortgage interest payments

S&P Standard & Poor’sSARS Severe Acute Respiratory SyndromeSDR Special Drawing RightSHLAF Social Housing Loan Amortisation FundSME Small and Medium-sized Enterprises

TARGET Trans-European Automated Real-time Gross Settlement Express TransferTMT Technology, media and telecommunications

UCI Undertaking for collective investmentUMTS Universal Mobile Telecommunications System

VAT Value added taxVDAB Vlaamse dienst voor arbeidsbemiddeling en beroepsopleiding (Flemish

employment exchange and vocational training service)WTO World Trade Organisation

Statistical annex

133

STATISTICAL ANNEX

TAB

LEI

SUM

MA

RY

OF

MA

CR

OEC

ON

OM

IC D

EVEL

OPM

ENTS

IN

SO

ME

EUR

O A

REA

CO

UN

TRIE

S

Sour

ces:

EC

, O

ECD

, N

AI,

NBB

.(1

)C

alen

dar

adju

sted

dat

a.(2

)A

vera

ge f

or e

leve

n m

onth

s in

200

3, e

xcep

t th

e N

ethe

rland

s an

d Ita

ly (

ten

mon

ths)

.(3

)In

clud

ing

the

capi

tal

tran

sfer

of

1.9

p.c.

of

GD

P, m

ade

by B

elga

com

in

retu

rn f

or t

he g

over

nmen

t’s

assu

mpt

ion

of i

ts p

ensi

on l

iabi

litie

s.

Belg

ium

(1)

Ger

man

yFr

ance

Italy

Spai

nN

ethe

rland

sA

ustr

ia

2002

2003

e20

0220

0320

0220

0320

0220

0320

0220

0320

0220

0320

0220

03

Expe

nditu

re a

t co

nsta

nt p

rices

(Per

cent

age

cont

ribut

ions

to

the

chan

ge in

GD

P)

Fina

l co

nsum

ptio

n ex

pend

iture

of

indi

vidu

als

. . .

. . .

. .

0.2

0.9

–0.6

0.4

0.8

0.9

0.3

1.1

1.6

2.0

0.4

–0.6

0.4

0.7

Publ

ic e

xpen

ditu

re .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.0.

40.

50.

20.

20.

90.

50.

40.

30.

90.

80.

90.

30.

1–0

.1

Gro

ss f

ixed

cap

ital

form

atio

n of

the

priv

ate

sect

or .

. . .

–0.5

0.4

–1.4

–0.4

–0.3

–0.2

0.1

–0.5

0.1

0.6

–1.0

–0.4

–0.7

0.6

of w

hich

:

Gro

ss f

orm

atio

n of

non

-res

iden

tial

fixed

cap

ital

. .

–0.4

0.3

–1.0

–0.2

–0.3

–0.3

0.0

–0.6

–0.2

0.3

–0.8

–0.5

–0.4

0.7

Tota

l do

mes

tic e

xpen

ditu

re .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

0.9

2.3

–1.6

0.8

1.1

1.1

1.1

1.7

2.6

3.4

0.0

–0.6

–0.3

0.7

Expo

rts

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.0.

71.

31.

20.

10.

4–0

.6–0

.3–0

.80.

01.

20.

1–0

.32.

00.

1

Impo

rts

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–0

.9–2

.50.

5–0

.9–0

.2–0

.3–0

.4–0

.4–0

.6–2

.30.

10.

3–0

.6–0

.5

p.m

.Net

exp

orts

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–0

.3–1

.31.

7–0

.80.

2–1

.0–0

.7–1

.2–0

.6–1

.10.

20.

01.

4–0

.5

(Per

cent

age

chan

ges

com

pare

d to

the

pre

viou

s ye

ar)

GD

P .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .0.

71.

10.

20.

01.

30.

10.

40.

52.

02.

30.

2–0

.51.

40.

8

Infla

tion

(Per

cent

age

chan

ges

com

pare

d to

the

pre

viou

s ye

ar)

Har

mon

ised

ind

ex o

f co

nsum

er p

rices

. . .

. . .

. . .

. . .

. .

1.6

1.5

1.3

1.0

1.9

2.2

2.6

2.8

3.6

3.1

3.9

2.2

1.7

1.3

Une

mpl

oym

ent(

2)(P

erce

ntag

es o

f th

e la

bour

for

ce)

Num

ber

of u

nem

ploy

ed (

EC d

ata)

.

. . .

. . .

. . .

. . .

. . .

7.3

7.9

8.6

9.3

8.8

9.4

9.0

8.7

11.3

11.3

2.7

3.7

4.3

4.4

Publ

ic f

inan

ces

(Per

cent

ages

of

GD

P)

Fina

ncin

g re

quire

men

t (–

) or

cap

acity

of

gene

ral

gove

rnm

ent

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .0.

00.

2(3

)–3

.5–4

.2–3

.1–4

.2–2

.3–2

.60.

10.

0–1

.6–2

.6–0

.2–1

.0

Bala

nce

of p

aym

ents

(Per

cent

ages

of

GD

P)

Bala

nce

of c

urre

nt t

rans

actio

ns .

. . .

. . .

. . .

. . .

. . .

. . .

5.4

3.8

2.7

2.1

2.0

0.9

–0.6

–1.2

–2.4

–3.6

1.4

1.9

0.4

–0.2

134

TAB

LEII

GD

P A

ND

MA

IN C

ATE

GO

RIE

S O

F EX

PEN

DIT

UR

E A

T 20

00 P

RIC

ES

(Per

cent

age

chan

ges

com

pare

d to

the

pre

viou

s ye

ar,

cale

ndar

adj

uste

d da

ta)

Sour

ces:

NA

I, N

BB.

(1)

Hou

sing

, gr

oss

fixed

cap

ital

form

atio

n by

ent

erpr

ises

and

gro

ss f

ixed

cap

ital

form

atio

n by

gen

eral

gov

ernm

ent.

(2)

Con

trib

utio

n to

the

cha

nge

in G

DP.

1996

1997

1998

1999

2000

2001

2002

2003

e

Fina

l co

nsum

ptio

n ex

pend

iture

of

indi

vidu

als

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .1.

12.

03.

12.

33.

40.

90.

41.

7

Hou

sing

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–8

.210

.40.

25.

70.

9–0

.6–1

.61.

2

Gro

ss f

ixed

cap

ital

form

atio

n by

ent

erpr

ises

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3.

97.

95.

22.

54.

62.

5–2

.72.

2

Expe

nditu

re o

f ge

nera

l go

vern

men

t . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

60.

51.

04.

62.

61.

41.

92.

2

Fina

l co

nsum

ptio

n . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2.

20.

41.

13.

52.

72.

51.

92.

3

Gro

ss f

ixed

cap

ital

form

atio

n .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .–5

.81.

70.

019

.42.

0–1

2.4

1.6

1.2

p.m

.Tot

al g

ross

fix

ed c

apita

l for

mat

ion

(1)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–0

.28.

03.

64.

53.

50.

5–2

.11.

9

Cha

nge

in s

tock

s(2) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–0.2

–0.1

0.5

–0.6

0.2

–0.7

0.8

0.5

Tota

l do

mes

tic e

xpen

ditu

re .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

0.9

2.8

3.2

2.4

3.5

0.5

1.0

2.4

Expo

rts

of g

oods

and

ser

vice

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

2.3

6.1

5.7

5.4

8.6

1.3

0.8

1.5

Tota

l fin

al e

xpen

ditu

re

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

54.

24.

33.

75.

80.

90.

92.

0

Impo

rts

of g

oods

and

ser

vice

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

2.4

4.8

7.3

4.5

8.4

1.1

1.1

3.1

p.m

.Net

exp

orts

of

good

s an

d se

rvic

es(2

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

0.0

1.0

–1.0

0.8

0.4

0.2

–0.3

–1.3

GD

P .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .0.

93.

72.

13.

23.

70.

70.

71.

1

135

STATISTICAL ANNEX

TAB

LEIII

GN

I A

ND

MA

IN C

ATE

GO

RIE

S O

F EX

PEN

DIT

UR

E A

T 20

00 P

RIC

ES

(Per

cent

age

chan

ges

com

pare

d to

the

pre

viou

s ye

ar)

Sour

ces:

NA

I, N

BB.

(1)

Hou

sing

, gr

oss

fixed

cap

ital

form

atio

n by

ent

erpr

ises

and

gro

ss f

ixed

cap

ital

form

atio

n by

gen

eral

gov

ernm

ent.

(2)

Con

trib

utio

n to

the

cha

nge

in G

DP.

(3)

Con

trib

utio

n to

the

cha

nge

in G

NI.

1996

1997

1998

1999

2000

2001

2002

2003

e

Fina

l co

nsum

ptio

n ex

pend

iture

of

indi

vidu

als

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .1.

12.

03.

12.

33.

40.

80.

41.

7

Hou

sing

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–8

.310

.50.

15.

71.

0–0

.6–1

.71.

3

Gro

ss f

ixed

cap

ital

form

atio

n by

ent

erpr

ises

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.5.

66.

54.

82.

26.

02.

2–3

.22.

2

Expe

nditu

re o

f ge

nera

l go

vern

men

t . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

80.

30.

94.

72.

61.

51.

92.

1

Fina

l co

nsum

ptio

n . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2.

50.

21.

03.

62.

72.

71.

92.

2

Gro

ss f

ixed

cap

ital

form

atio

n .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .–5

.81.

8–0

.119

.52.

0–1

2.5

1.6

1.4

p.m

.Tot

al g

ross

fix

ed c

apita

l for

mat

ion

(1)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.0.

97.

13.

34.

44.

40.

3–2

.51.

9

Cha

nge

in s

tock

s(2) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–0.5

0.1

0.2

–0.5

0.3

–0.6

0.7

0.5

Tota

l do

mes

tic e

xpen

ditu

re .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

0.9

2.7

2.9

2.5

3.8

0.4

0.8

2.4

Expo

rts

of g

oods

and

ser

vice

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

3.0

5.9

6.0

5.1

8.4

1.3

1.0

1.6

Tota

l fin

al e

xpen

ditu

re

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

84.

14.

33.

75.

90.

80.

92.

0

Impo

rts

of g

oods

and

ser

vice

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

2.6

5.1

7.3

4.2

8.5

1.1

1.2

3.1

p.m

.Net

exp

orts

of

good

s an

d se

rvic

es(2

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

0.3

0.8

–0.8

0.8

0.2

0.2

–0.1

–1.2

GD

P .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .1.

23.

52.

03.

23.

80.

60.

71.

1

Trad

e su

rplu

s or

def

icit

(–)

resu

lting

fro

m t

he c

hang

e in

the

ter

ms

of t

rade

(3)

. . .

. . .

–0.5

–0.4

0.9

–0.5

–1.7

0.0

0.6

0.7

Net

prim

ary

inco

mes

rec

eive

d fr

om t

he r

est

of t

he w

orld

(3) .

. . .

. . .

. . .

. . .

. . .

. . .

. .

–0.1

0.0

0.2

0.0

–0.1

–0.2

0.7

–0.6

GN

I . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

0.6

2.9

3.0

2.6

1.9

0.4

2.0

1.2

136

TAB

LEIV

DEF

LATO

RS

OF

GN

I A

ND

OF

THE

MA

IN C

ATE

GO

RIE

S O

F EX

PEN

DIT

UR

E

(Per

cent

age

chan

ges

com

pare

d to

the

pre

viou

s ye

ar)

Sour

ces:

NA

I, N

BB.

(1)

Hou

sing

, gr

oss

fixed

cap

ital

form

atio

n by

ent

erpr

ises

and

gro

ss f

ixed

cap

ital

form

atio

n by

gen

eral

gov

ernm

ent.

(2)

Excl

udin

g ch

ange

s in

sto

cks.

1996

1997

1998

1999

2000

2001

2002

2003

e

Fina

l co

nsum

ptio

n ex

pend

iture

of

indi

vidu

als

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .2.

11.

80.

91.

22.

32.

51.

71.

8

Hou

sing

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.0.

70.

71.

70.

92.

71.

11.

62.

3

Gro

ss f

ixed

cap

ital

form

atio

n by

ent

erpr

ises

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

90.

61.

32.

11.

80.

4–1

.3–1

.2

Expe

nditu

re o

f ge

nera

l go

vern

men

t . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

22.

22.

21.

52.

42.

23.

32.

3

Fina

l co

nsum

ptio

n . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

22.

42.

21.

52.

22.

33.

42.

3

Gro

ss f

ixed

cap

ital

form

atio

n .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .0.

60.

11.

91.

14.

20.

81.

62.

5

p.m

.Tot

al g

ross

fix

ed c

apita

l for

mat

ion

(1)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

50.

61.

41.

72.

20.

6–0

.4–0

.1

Tota

l do

mes

tic e

xpen

ditu

re(2

) . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1.8

1.7

1.3

1.4

2.3

2.0

1.6

1.5

Expo

rts

of g

oods

and

ser

vice

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1.7

4.8

–1.3

0.0

9.6

1.5

–0.9

–0.4

Tota

l fin

al e

xpen

ditu

re(2

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

73.

00.

10.

85.

51.

80.

40.

6

Impo

rts

of g

oods

and

ser

vice

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

2.5

5.5

–2.2

0.7

12.0

1.5

–1.7

–1.3

p.m

.Ter

ms

of t

rade

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–0

.8–0

.71.

0–0

.7–2

.20.

00.

80.

8

GD

P .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .1.

21.

41.

71.

41.

21.

81.

72.

0

GN

I . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

1.7

1.9

0.8

1.9

3.0

1.8

1.1

1.3

137

STATISTICAL ANNEX

TAB

LEV

GN

I A

ND

TH

E M

AIN

CA

TEG

OR

IES

OF

EXPE

ND

ITU

RE

AT

CU

RR

ENT

PRIC

ES

(Mill

ions

of

euro

s)

Sour

ces:

NA

I, N

BB.

(1)

Hou

sing

, gr

oss

fixed

cap

ital

form

atio

n by

ent

erpr

ises

and

gro

ss f

ixed

cap

ital

form

atio

n by

gen

eral

gov

ernm

ent.

1996

1997

1998

1999

2000

2001

2002

2003

e

Fina

l co

nsum

ptio

n ex

pend

iture

of

indi

vidu

als

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .11

3,23

211

7,58

412

2,41

212

6,75

113

4,15

913

8,56

514

1,51

414

6,57

1

Hou

sing

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.9,

897

11,0

0911

,202

11,9

4912

,400

12,4

6412

,449

12,8

95

Gro

ss f

ixed

cap

ital

form

atio

n by

ent

erpr

ises

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.27

,889

29,8

9631

,747

33,1

3635

,737

36,6

6635

,021

35,3

89

Expe

nditu

re o

f ge

nera

l go

vern

men

t . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.48

,220

49,4

3650

,974

54,1

8056

,908

59,0

5262

,144

64,9

34

Fina

l co

nsum

ptio

n . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.44

,850

46,0

0347

,479

49,9

5752

,419

55,0

9158

,056

60,6

81

Gro

ss f

ixed

cap

ital

form

atio

n .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .3,

370

3,43

33,

496

4,22

44,

489

3,96

14,

088

4,25

2

p.m

.Tot

al g

ross

fix

ed c

apita

l for

mat

ion

(1)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.41

,156

44,3

3846

,444

49,3

0852

,626

53,0

9151

,558

52,5

37

Cha

nge

in s

tock

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–6

78–3

13–6

95–5

2198

8–1

,098

–593

222

Tota

l do

mes

tic e

xpen

ditu

re .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

198,

559

207,

613

215,

640

225,

495

240,

193

245,

649

250,

535

260,

011

Expo

rts

of g

oods

and

ser

vice

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

146,

158

162,

241

169,

816

178,

453

211,

999

217,

799

218,

020

220,

460

Tota

l fin

al e

xpen

ditu

re

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.34

4,71

736

9,85

438

5,45

640

3,94

845

2,19

146

3,44

846

8,55

548

0,47

0

Impo

rts

of g

oods

and

ser

vice

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

137,

728

152,

680

160,

212

168,

235

204,

399

209,

648

208,

545

212,

316

p.m

.Net

exp

orts

of

good

s an

d se

rvic

es

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

8,43

09,

561

9,60

410

,218

7,60

08,

151

9,47

68,

144

GD

P .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .20

6,98

921

7,17

322

5,24

423

5,71

324

7,79

225

3,80

026

0,01

126

8,15

4

Net

prim

ary

inco

mes

rec

eive

d fr

om t

he r

est

of t

he w

orld

. .

. . .

. . .

. . .

. . .

. . .

. . .

. .

4,12

54,

297

4,80

44,

858

4,64

14,

208

5,95

54,

522

GN

I . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

211,

114

221,

470

230,

048

240,

751

252,

434

258,

007

265,

966

272,

676

138

TAB

LEV

IV

ALU

E A

DD

ED O

F TH

E V

AR

IOU

S B

RA

NC

HES

OF

AC

TIV

ITY

AT

2000

PR

ICES

(Per

cent

age

chan

ges

com

pare

d to

the

pre

viou

s ye

ar)

Sour

ce: N

AI.

(1)

Con

trib

utio

n to

the

cha

nge

in G

DP.

1996

1997

1998

1999

2000

2001

2002

p.m

.Pe

rcen

tage

sof

the

200

2 G

DP

Agr

icul

ture

, hu

ntin

g, f

ores

try

and

fishe

ries

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–0

.32.

93.

45.

11.

0–1

1.2

12.1

1.3

Indu

stry

.

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .2.

56.

60.

71.

25.

00.

10.

420

.2

Min

eral

-ext

ract

ing

indu

stry

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–7.3

9.4

–11.

1–4

.512

.3–1

8.9

–1.6

0.1

Elec

tric

ity,

gas,

wat

er

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

10.1

7.7

–4.6

10.9

6.1

–0.9

–3.8

2.3

Man

ufac

turin

g in

dust

ry .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

76.

51.

50.

04.

80.

41.

017

.8

of w

hich

:N

on-m

etal

lic m

iner

als

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

–6.1

4.6

–8.1

6.8

–1.3

–2.0

–2.0

0.9

Iron,

ste

el,

and

non-

ferr

ous

met

als

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–4

.09.

41.

14.

57.

10.

10.

42.

5

Met

al-w

orki

ng i

ndus

try

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.5.

28.

25.

1–0

.413

.7–4

.31.

14.

1

Pape

r, p

rintin

g, p

ublis

hing

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–5.1

5.7

–0.6

7.0

–0.5

–3.2

1.3

1.4

Che

mic

als

and

rubb

er

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .6.

012

.2–1

.33.

76.

31.

42.

24.

1

Text

iles,

clo

thin

g an

d fo

otw

ear

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.12

.311

.85.

1–7

.4–1

0.7

0.3

–0.4

0.9

Food

, be

vera

ges,

tob

acco

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

0.6

–4.0

4.5

–1.5

–1.6

14.8

0.9

2.6

Build

ing

indu

stry

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–3

.14.

3–1

.83.

57.

70.

6–0

.94.

5

Mar

ket

serv

ices

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .0.

52.

92.

73.

12.

61.

50.

153

.0

Trad

e an

d re

pairs

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–0

.71.

41.

11.

30.

52.

11.

010

.8

Fina

ncia

l se

rvic

es .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

5.3

9.9

1.3

0.6

–9.1

–9.1

–4.3

4.7

Real

est

ate,

ren

ting

and

serv

ices

to

ente

rpris

es .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3.

04.

04.

13.

65.

33.

00.

520

.8

Tran

spor

t an

d co

mm

unic

atio

ns .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–5

.2–1

.46.

34.

96.

34.

91.

26.

5

Hea

lth c

are

and

soci

al s

ervi

ces

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

–1.0

0.5

–1.5

8.0

4.7

4.6

1.3

6.3

Hot

els

and

cate

ring

and

mis

cella

neou

s se

rvic

es t

o ho

useh

olds

. .

. . .

. . .

. . .

. . .

. . .

–3.3

1.3

3.4

0.0

4.2

–3.1

–3.3

3.9

Non

-mar

ket

serv

ices

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

50.

11.

12.

22.

11.

40.

113

.2

Val

ue a

dded

of

bran

ches

, at

bas

ic p

rices

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

0.9

3.3

1.8

2.6

3.3

1.0

0.2

Fina

ncia

l in

term

edia

tion

serv

ices

ind

irect

ly m

easu

red

and

taxe

s ne

t of

sub

sidi

es o

n pr

oduc

ts(1

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.0.

40.

30.

30.

80.

8–0

.30.

5

GD

P .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .1.

23.

52.

03.

23.

80.

60.

710

0.0

139

STATISTICAL ANNEX

TAB

LEV

IID

EMA

ND

FO

R A

ND

SU

PPLY

OF

LAB

OU

R

(Ann

ual

aver

ages

, th

ousa

nds

of u

nits

)

Sour

ces:

FO

REM

, N

AI,

NSI

, O

NEM

, O

RBEM

, V

DA

B, N

BB.

(1)

Pers

ons

aged

15

to 6

4.(2

)U

nem

ploy

ed j

ob-s

eeke

rs,

cons

istin

g of

who

lly u

nem

ploy

ed p

erso

ns r

ecei

ving

ben

efit,

exc

ludi

ng o

lder

une

mpl

oyed

per

sons

and

oth

er c

ompu

lsor

ily o

r vo

lunt

arily

reg

iste

red

job-

seek

ers.

1996

1997

1998

1999

2000

2001

2002

2003

e

Popu

latio

n of

wor

king

age

(1)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

6,70

36,

706

6,70

96,

715

6,72

16,

743

6,77

46,

797

Labo

ur f

orce

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.4,

486

4,50

44,

547

4,56

84,

612

4,66

84,

677

4,70

8

Nat

iona

l em

ploy

men

t .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .3,

898

3,93

44,

006

4,06

04,

138

4,19

84,

186

4,17

0

Fron

tier

wor

kers

(ba

lanc

e) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

4748

4949

5050

5049

Dom

estic

em

ploy

men

t . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

3,85

13,

886

3,95

64,

011

4,08

84,

148

4,13

64,

121

Self-

empl

oyed

per

sons

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

704

702

697

693

688

683

679

677

Empl

oyee

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3,

147

3,18

43,

259

3,31

93,

400

3,46

63,

457

3,44

4

Priv

ate

sect

or

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2,

436

2,47

42,

537

2,58

12,

656

2,71

82,

695

2,67

8

Publ

ic s

ecto

r . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

711

710

722

737

744

748

761

766

Une

mpl

oym

ent(

2)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

588

570

541

508

474

470

491

538

Vac

anci

es

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .21

2536

4453

4641

40

140

TAB

LEV

IIIU

NEM

PLO

YM

ENT

(Per

cent

ages

of

the

corr

espo

ndin

g la

bour

for

ce a

ged

15 t

o 64

(1) ,

annu

al a

vera

ges)

Sour

ce: E

C.

(1)

Thes

e un

empl

oym

ent

rate

s ar

e ca

lcul

ated

on

the

basi

s of

the

har

mon

ised

dat

a fr

om t

he l

abou

r fo

rce

surv

ey.

Seco

nd q

uart

er

1999

2000

2001

2002

2002

2003

Tota

l . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.8.

66.

96.

77.

36.

97.

7

Acc

ordi

ng t

o ge

nder

Wom

en

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

10.3

8.5

7.6

8.2

7.8

8.0

Men

.

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.7.

35.

66.

06.

76.

27.

4

Acc

ordi

ng t

o ag

e

Und

er 2

5 . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

22.7

17.0

17.5

18.5

15.7

19.0

25 a

nd o

ver

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

7.1

5.7

5.5

6.1

6.0

6.5

Acc

ordi

ng t

o re

gion

Brus

sels

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.15

.813

.912

.914

.516

.0n.

Flan

ders

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.5.

44.

34.

04.

94.

8n.

Wal

loni

a .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.12

.610

.29.

910

.58.

5n.

Acc

ordi

ng t

o ed

ucat

iona

l lev

el

Low

er s

econ

dary

edu

catio

n or

les

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .13

.611

.110

.011

.711

.311

.7

Upp

er s

econ

dary

edu

catio

n . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.8.

06.

86.

77.

36.

68.

0

Hig

her

educ

atio

n . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

3.8

3.3

3.5

4.1

3.5

3.8

141

STATISTICAL ANNEX

TAB

LEIX

HA

RM

ON

ISED

IN

DEX

OF

CO

NSU

MER

PR

ICES

FO

R B

ELG

IUM

(Per

cent

age

chan

ges

com

pare

d to

the

cor

resp

ondi

ng p

erio

d of

the

pre

viou

s ye

ar)

Sour

ces:

EC

; FP

S Ec

onom

y, S

MEs

, Se

lf-em

ploy

ed a

nd E

nerg

y.(1

)Fr

uit,

veg

etab

les,

mea

t an

d fis

h.(2

)H

ICP

excl

udin

g un

proc

esse

d fo

od a

nd e

nerg

y.(3

)N

atio

nal

inde

x of

con

sum

er p

rices

exc

ludi

ng p

rodu

cts

cons

ider

ed h

arm

ful

to h

ealth

, na

mel

y to

bacc

o, a

lcoh

olic

bev

erag

es,

petr

ol a

nd d

iese

l.

Tota

lp.

m.

Nat

iona

l in

dex

of c

onsu

mer

pric

es

p.m

.“H

ealth

” pr

ice

inde

x(3

)

Ener

gyU

npro

cess

edfo

od(1

)U

nder

lyin

g tr

end

in i

nfla

tion

(2)

Proc

esse

dfo

odN

on-e

nerg

yin

dust

rial

good

sSe

rvic

es

1996

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

85.

70.

71.

40.

80.

62.

52.

11.

7

1997

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

53.

12.

71.

12.

30.

11.

71.

61.

3

1998

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.0.

9–3

.62.

21.

41.

40.

72.

11.

01.

3

1999

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

12.

00.

01.

10.

60.

81.

81.

10.

9

2000

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2.

716

.30.

21.

11.

30.

02.

32.

51.

9

2001

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2.

41.

46.

92.

12.

22.

02.

12.

52.

7

2002

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

6–3

.63.

22.

11.

51.

72.

61.

61.

8

2003

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1.

50.

21.

71.

72.

81.

01.

91.

61.

5

2003

Janu

ary

. . .

. . .

. . .

. . .

. . .

.1.

23.

1–2

.31.

31.

71.

11.

31.

20.

9

Febr

uary

. .

. . .

. . .

. . .

. . .

.1.

65.

70.

31.

42.

81.

21.

11.

71.

3

Mar

ch .

. . .

. . .

. . .

. . .

. . .

.1.

76.

2–0

.31.

42.

91.

01.

21.

81.

4

Apr

il .

. . .

. . .

. . .

. . .

. . .

. .1.

4–2

.20.

62.

03.

20.

82.

61.

51.

5

May

.

. . .

. . .

. . .

. . .

. . .

. .0.

9–4

.2–0

.71.

73.

30.

92.

01.

01.

1

June

. .

. . .

. . .

. . .

. . .

. . .

.1.

5–1

.62.

71.

73.

30.

92.

01.

61.

6

July

. .

. . .

. . .

. . .

. . .

. . .

. .

1.4

–1.9

2.3

1.7

3.2

1.0

1.8

1.5

1.5

Aug

ust

. . .

. . .

. . .

. . .

. . .

.1.

60.

24.

31.

62.

90.

91.

71.

81.

6

Sept

embe

r .

. . .

. . .

. . .

. . .

1.7

–1.2

5.4

1.7

2.7

1.0

1.9

1.8

1.7

Oct

ober

. .

. . .

. . .

. . .

. . .

. .1.

4–2

.42.

71.

82.

61.

02.

41.

61.

6

Nov

embe

r . .

. . .

. . .

. . .

. . .

1.8

0.9

3.0

1.8

2.4

0.7

2.5

1.9

1.7

Dec

embe

r . .

. . .

. . .

. . .

. . .

1.7

–0.2

2.9

1.7

2.2

1.0

2.2

1.7

1.6

142

TAB

LEX

INC

OM

ES O

F TH

E V

AR

IOU

S SE

CTO

RS

AT

CU

RR

ENT

PRIC

ES(1

)

(Mill

ions

of

euro

s)

Sour

ces:

NA

I, N

BB.

(1)

The

data

in

this

tab

le a

re c

alcu

late

d in

gro

ss t

erm

s, i

.e.

befo

re d

educ

tion

of c

onsu

mpt

ion

of f

ixed

cap

ital.

(2)

Rem

uner

atio

n (e

xclu

ding

tha

t of

ow

ner

entr

epre

neur

s),

incl

udin

g so

cial

sec

urity

con

trib

utio

ns a

nd c

ivil

serv

ice

pens

ions

.(3

)Th

ese

are

net

amou

nts,

i.e

. th

e di

ffer

ence

bet

wee

n in

com

es o

r tr

ansf

ers

rece

ived

fro

m o

ther

sec

tors

and

tho

se p

aid

to o

ther

sec

tors

, ex

clud

ing

tran

sfer

s in

kin

d.(4

)D

ata

defla

ted

by m

eans

of

the

defla

tor

of t

he f

inal

con

sum

ptio

n ex

pend

iture

of

indi

vidu

als,

at

2000

pric

es.

(5)

Incl

udin

g th

e ne

gativ

e va

lue

of t

he g

ross

ope

ratin

g su

rplu

s of

fin

anci

al i

nter

med

iatio

n se

rvic

es i

ndire

ctly

mea

sure

d.

1996

1997

1998

1999

2000

2001

2002

2003

e

Indi

vidu

als

Gro

ss p

rimar

y in

com

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.16

4,88

117

0,53

417

6,12

818

2,46

819

1,77

420

0,65

920

6,20

320

9,21

1

Wag

es a

nd s

alar

ies(

2)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.10

9,73

811

4,20

911

8,07

312

4,22

612

9,79

013

7,16

614

2,58

814

4,94

0

Inco

mes

fro

m m

ovab

le p

rope

rty

(3)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

20,4

2320

,479

21,6

3120

,811

23,2

6224

,112

23,9

0223

,200

Gro

ss m

ixed

inc

ome

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

24,5

7225

,273

25,5

1426

,074

26,8

7727

,165

27,3

3628

,347

Gro

ss o

pera

ting

surp

lus

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

10,1

4810

,573

10,9

1011

,357

11,8

4512

,216

12,3

7712

,724

Cur

rent

tra

nsfe

rs(3

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–2

8,29

5–3

0,31

6–3

2,08

3–3

3,67

9–3

6,05

3–3

8,35

8–3

9,00

1–3

7,81

0

Tran

sfer

s re

ceiv

ed

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.47

,935

49,4

2150

,655

51,4

2752

,734

55,6

2458

,318

60,5

93

Tran

sfer

s pa

id (

–) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–7

6,23

1–7

9,73

7–8

2,73

8–8

5,10

6–8

8,78

6–9

3,98

1–9

7,31

9–9

8,40

3

Gro

ss d

ispo

sabl

e in

com

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

136,

585

140,

219

144,

046

148,

790

155,

722

162,

301

167,

202

171,

400

p.m

.At

cons

tant

pric

es(4

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .14

5,45

014

6,63

814

9,23

015

2,24

415

5,72

215

8,37

016

0,41

916

1,53

1

(Per

cent

age

chan

ges

com

pare

d to

the

pre

viou

s ye

ar)

. . .

. . .

. . .

. . .

. . .

. . .

. .(–

1.3)

(0.8

)(1

.8)

(2.0

)(2

.3)

(1.7

)(1

.3)

(0.7

)

Com

pani

es

Gro

ss p

rimar

y in

com

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.35

,467

37,4

7839

,419

41,1

7542

,353

39,2

6439

,219

41,7

42

Gro

ss o

pera

ting

surp

lus(

5)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.37

,240

39,9

0542

,697

44,2

1747

,865

46,4

0145

,506

49,4

58

Inco

mes

fro

m m

ovab

le p

rope

rty

(3)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–1,7

73–2

,428

–3,2

78–3

,042

–5,5

12–7

,137

–6,2

87–7

,716

Cur

rent

tra

nsfe

rs(3

) . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–4,7

08–5

,334

–7,1

12–6

,789

–7,1

18–6

,803

–6,3

40–6

,624

Gro

ss d

ispo

sabl

e in

com

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

30,7

5932

,144

32,3

0734

,386

35,2

3532

,461

32,8

7935

,118

Gen

eral

gov

ernm

ent

Gro

ss p

rimar

y in

com

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.10

,767

13,4

5814

,501

16,9

2818

,307

18,0

8520

,544

21,7

23

Cur

rent

tra

nsfe

rs(3

) . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

30,9

5433

,603

36,8

3138

,009

40,9

0642

,975

43,0

9741

,270

Gro

ss d

ispo

sabl

e in

com

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

41,7

2047

,061

51,3

3254

,937

59,2

1361

,060

63,6

4162

,993

Rest

of

the

wor

ld

Gro

ss d

ispo

sabl

e in

com

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

2,04

92,

046

2,36

32,

459

2,26

42,

185

2,24

43,

164

GN

I . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

211,

114

221,

470

230,

048

240,

571

252,

434

258,

007

265,

966

272,

676

143

STATISTICAL ANNEX

TAB

LEX

ISU

MM

AR

Y O

F TH

E TR

AN

SAC

TIO

NS

OF

THE

MA

IN S

ECTO

RS

OF

THE

ECO

NO

MY

AT

CU

RR

ENT

PRIC

ES(1

)

(Mill

ions

of

euro

s)

Sour

ces:

NA

I, N

BB.

(1)

The

data

in

this

tab

le a

re c

alcu

late

d in

gro

ss t

erm

s, i

.e.

befo

re d

educ

tion

of c

onsu

mpt

ion

of f

ixed

cap

ital.

(2)

Dis

posa

ble

inco

me,

inc

ludi

ng c

hang

es i

n th

e ne

t eq

uity

of

hous

ehol

ds i

n pe

nsio

n fu

nds

rese

rves

.(3

)Th

ese

are

net

amou

nts,

i.e

. th

e di

ffer

ence

bet

wee

n tr

ansf

ers

rece

ived

fro

m o

ther

sec

tors

and

tho

se p

aid

to o

ther

sec

tors

, in

clud

ing

net

acqu

isiti

ons

of n

on-f

inan

cial

non

-pro

duce

d as

sets

and

net

acq

uisi

tions

of

valu

able

s.

1996

1997

1998

1999

2000

2001

2002

2003

e

1.In

divi

dual

s1.

1G

ross

dis

posa

ble

inco

me

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .13

6,58

514

0,21

914

4,04

614

8,79

015

5,72

216

2,30

116

7,20

217

1,40

0p.

m.G

ross

adj

uste

d di

spos

able

inco

me

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

165,

346

169,

367

174,

329

180,

324

188,

648

197,

177

203,

812

210,

052

1.2

Cha

nge

in n

et e

quity

of

hous

ehol

ds i

n pe

nsio

n fu

nds

rese

rves

. .

. . .

. . .

. . .

1,32

31,

401

1,16

61,

258

1,15

61,

536

1,75

71,

838

1.3

Fina

l co

nsum

ptio

n ex

pend

iture

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.11

3,23

211

7,58

412

2,41

212

6,75

113

4,15

913

8,56

514

1,51

414

6,57

1p.

m.A

ctua

l fin

al c

onsu

mpt

ion

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

141,

992

146,

733

152,

696

158,

285

167,

086

173,

441

178,

124

185,

222

1.4

Gro

ss s

avin

gs (

1.1

+ 1

.2 –

1.3

) . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.24

,677

24,0

3622

,799

23,2

9722

,718

25,2

7227

,445

26,6

67p.

m.P

erce

ntag

es o

f gr

oss

disp

osab

le in

com

e(2

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.17

.917

.015

.715

.514

.515

.416

.215

.4p.

m.P

erce

ntag

es o

f gr

oss

adju

sted

dis

posa

ble

inco

me

(2)

. . .

. . .

. . .

. . .

. . .

.14

.814

.113

.012

.812

.012

.713

.412

.61.

5C

apita

l tr

ansf

ers(

3) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

271

201

1387

–125

–651

–496

–626

1.6

Gro

ss c

apita

l fo

rmat

ion

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

12,0

4813

,281

13,7

7714

,301

15,0

0814

,732

14,7

1415

,325

1.7

Fina

ncin

g ca

paci

ty (

1.4

+ 1

.5 –

1.6

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.12

,900

10,9

569,

036

9,08

27,

585

9,88

912

,235

10,7

16

2.C

ompa

nies

2.1

Gro

ss d

ispo

sabl

e in

com

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

30,7

5932

,144

32,3

0734

,386

35,2

3532

,461

32,8

7935

,118

2.2

Cha

nge

in n

et e

quity

of

hous

ehol

ds i

n pe

nsio

n fu

nds

rese

rves

. .

. . .

. . .

. . .

–1,3

23–1

,401

–1,1

66–1

,258

–1,1

56–1

,536

–1,7

57–1

,838

2.3

Gro

ss s

avin

gs (

2.1

+ 2

.2)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.29

,436

30,7

4231

,141

33,1

2834

,079

30,9

2531

,122

33,2

802.

4C

apita

l tr

ansf

ers(

3) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1,07

92,

079

1,92

61,

760

1,87

11,

081

1,48

2–2

,334

2.5

Gro

ss f

ixed

cap

ital

form

atio

n .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

25,6

9227

,583

29,1

9830

,745

33,0

7534

,354

32,6

5432

,997

2.6

Cha

nge

in s

tock

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–628

–272

–726

–493

1,04

8–1

,043

–528

146

2.7

Fina

ncin

g ca

paci

ty (

2.3

+ 2

.4 –

2.5

– 2

.6)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

5,45

15,

511

4,59

54,

634

1,82

6–1

,305

478

–2,1

97

3.G

ener

al g

over

nmen

t3.

1G

ross

dis

posa

ble

inco

me

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .41

,720

47,0

6151

,332

54,9

3759

,213

61,0

6063

,641

62,9

93p.

m.G

ross

adj

uste

d di

spos

able

inco

me

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

12,9

6017

,913

21,0

4923

,403

26,2

8626

,184

27,0

3124

,342

3.2

Fina

l co

nsum

ptio

n ex

pend

iture

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.44

,850

46,0

0347

,479

49,9

5752

,419

55,0

9158

,056

60,6

81p.

m.A

ctua

l fin

al c

onsu

mpt

ion

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

16,0

8916

,855

17,1

9518

,423

19,4

9220

,215

21,4

4622

,030

3.3

Gro

ss s

avin

gs (

3.1

– 3.

2) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–3

,129

1,05

83,

854

4,98

06,

794

5,96

95,

585

2,31

23.

4C

apita

l tr

ansf

ers(

3) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–1,3

77–1

,887

–2,0

09–1

,780

–2,0

06–7

57–1

,360

2,41

13.

5G

ross

fix

ed c

apita

l fo

rmat

ion

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3,

370

3,43

33,

496

4,22

44,

489

3,96

14,

088

4,25

23.

6C

hang

e in

sto

cks

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .–4

15

10–6

–11

3838

3.7

Fina

ncin

g re

quire

men

t or

cap

acity

(3.

3 +

3.4

– 3

.5 –

3.6

) .

. . .

. . .

. . .

. . .

. .–7

,873

–4,2

63–1

,656

–1,0

3330

51,

263

9943

3

4.To

tal

of d

omes

tic s

ecto

rs4.

1Fi

nanc

ing

capa

city

(1.

7 +

2.7

+ 3

.7)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .10

,479

12,2

0411

,975

12,6

839,

716

9,84

612

,813

8,95

2

144

TAB

LEX

IIR

EVEN

UE,

EX

PEN

DIT

UR

E A

ND

FIN

AN

CIN

G R

EQU

IREM

ENT

(–)

OR

CA

PAC

ITY

OF

GEN

ERA

L G

OV

ERN

MEN

T(1

)

(Mill

ions

of

euro

s)

Sour

ces:

NA

I, N

BB.

(1)

From

200

2, t

he d

ata

inco

rpor

ate

the

effe

cts

of t

he r

ecla

ssifi

catio

n of

the

pub

lic r

adio

and

tel

evis

ion

com

pani

es f

rom

the

non

-fin

anci

al c

orpo

ratio

ns s

ecto

r to

the

gen

eral

gov

ernm

ent

sect

or.

(2)

In a

ccor

danc

e w

ith t

he E

SA 9

5, g

ener

al g

over

nmen

t re

venu

es d

o no

t in

clud

e th

e ta

x re

venu

es t

rans

ferr

ed t

o th

e EU

.(3

)M

ainl

y w

ithho

ldin

g ta

x on

ear

ned

inco

me,

adv

ance

pay

men

ts,

asse

ssm

ents

and

pro

ceed

s of

add

ition

al c

entim

es o

n pe

rson

al i

ncom

e ta

x.(4

)To

tal

soci

al c

ontr

ibut

ions

, in

clud

ing

the

spec

ial

soci

al s

ecur

ity c

ontr

ibut

ion

and

the

cont

ribut

ions

of

non-

activ

e pe

rson

s.(5

)M

ainl

y ad

vanc

e pa

ymen

ts,

asse

ssm

ents

and

the

with

hold

ing

tax

on i

ncom

e fr

om m

ovab

le p

rope

rty.

(6)

Mai

nly

the

with

hold

ing

tax

on i

ncom

e fr

om m

ovab

le p

rope

rty

paya

ble

by i

ndiv

idua

ls,

the

with

hold

ing

tax

on i

ncom

e fr

om i

mm

ovab

le p

rope

rty

(incl

udin

g pr

ocee

ds o

f ad

ditio

nal

cent

imes

), in

herit

ance

tax

es a

nd r

egis

trat

ion

fees

.(7

)Pr

oper

ty in

com

es,

impu

ted

soci

al s

ecur

ity c

ontr

ibut

ions

, cu

rren

t an

d ca

pita

l tra

nsfe

rs f

rom

oth

er s

ecto

rs a

nd s

ales

of

prod

uced

goo

ds a

nd s

ervi

ces.

In 2

003,

it in

clud

es t

he c

apita

l tra

nsfe

r of

5 b

illio

n eu

ro m

ade

by B

elga

com

in r

etur

n fo

r th

e go

vern

men

t’s

assu

mpt

ion

of i

ts p

ensi

on l

iabi

litie

s.(8

)In

clud

ing

pens

ions

of

Post

Off

ice

staf

f.(9

)A

part

fro

m t

he t

wo

mai

n su

b-ca

tego

ries

men

tione

d in

the

tab

le,

this

ite

m a

lso

incl

udes

mai

nly

allo

wan

ces

to h

andi

capp

ed p

erso

ns a

nd t

rans

fers

to

the

inst

itutio

ns a

ccom

mod

atin

g th

em,

paym

ents

by

subs

iste

nce

fund

s an

d pe

nsio

ns t

o w

ar v

ictim

s.(1

0)In

clud

ing

the

proc

eeds

of

the

sale

of

UM

TS l

icen

ces

in 2

001.

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

e

Reve

nue

(2)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

94,3

0298

,064

101,

598

107,

402

112,

633

117,

057

122,

657

126,

872

131,

380

137,

781

Fisc

al a

nd p

araf

isca

l re

venu

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.85

,717

88,9

6791

,817

97,1

9310

2,33

310

6,26

611

1,53

511

4,73

511

8,92

412

0,27

3Le

vies

wei

ghin

g ch

iefly

on

earn

ed i

ncom

es .

. . .

. . .

. . .

. . .

. . .

.53

,479

55,4

0856

,142

58,9

7961

,638

63,4

9366

,750

70,0

0372

,233

72,9

83Pe

rson

al i

ncom

e ta

x(3

) . . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

23,9

3025

,240

25,4

3927

,040

28,3

7929

,032

31,1

3132

,703

33,4

3933

,800

Soci

al s

ecur

ity c

ontr

ibut

ions

(4)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.29

,550

30,1

6830

,703

31,9

3933

,259

34,4

6135

,619

37,3

0038

,794

39,1

83Ta

xes

on p

rofit

s of

com

pani

es(5

) . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

4,45

64,

890

5,63

96,

273

7,77

07,

711

8,09

78,

099

8,10

07,

975

Levi

es o

n ot

her

inco

me

and

in r

espe

ct o

f pr

oper

ty(6

) . .

. . .

. . .

. .6,

665

7,12

47,

027

7,57

67,

948

7,95

28,

496

8,68

29,

078

9,20

7Ta

xes

on g

oods

and

ser

vice

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

21,1

1721

,546

23,0

0924

,366

24,9

7727

,111

28,1

9227

,952

29,5

1230

,108

Non

-fis

cal

and

non-

para

fisca

l re

venu

e(7

) . .

. . .

. . .

. . .

. . .

. . .

. . .

.8,

586

9,09

79,

781

10,2

0910

,300

10,7

9111

,122

12,1

3612

,457

17,5

08Ex

pend

iture

exc

ludi

ng i

nter

est

char

ges

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

85,3

5288

,125

91,1

4494

,361

97,2

4310

1,61

710

5,55

210

8,82

411

5,47

212

2,30

2So

cial

ins

uran

ce b

enef

its .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

43,8

4545

,718

47,4

2848

,362

49,7

7151

,293

53,2

8355

,998

59,1

8962

,415

Repl

acem

ent

inco

mes

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.26

,041

26,7

5227

,579

28,4

5929

,143

29,6

8630

,352

31,6

2933

,704

35,3

49Pe

nsio

ns .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

16,8

2517

,541

18,0

7918

,876

19,4

4019

,925

20,5

7221

,384

22,3

7023

,134

Priv

ate

sect

or p

ensi

ons

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .12

,265

12,7

2413

,110

13,4

5813

,800

14,1

4914

,549

15,1

1515

,740

16,3

20G

ener

al g

over

nmen

t pe

nsio

ns(8

) .

. . .

. . .

. . .

. . .

. . .

. . .

. .4,

561

4,81

84,

969

5,41

85,

640

5,77

66,

023

6,27

06,

630

6,81

4O

ld p

erso

ns’

guar

ante

ed i

ncom

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

236

235

231

233

231

227

249

258

258

267

Early

ret

irem

ent

pens

ions

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1,29

11,

294

1,30

51,

308

1,25

51,

215

1,16

31,

165

1,15

81,

187

Une

mpl

oym

ent

bene

fits

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

4,30

74,

219

4,42

24,

462

4,53

04,

492

4,38

14,

629

5,26

75,

767

Car

eer

brea

ks a

nd t

ime

cred

it . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

136

132

130

138

161

197

236

275

360

439

Sick

ness

and

dis

abili

ty i

nsur

ance

ben

efits

.

. . .

. . .

. . .

. . .

. . .

2,43

12,

482

2,54

32,

547

2,63

42,

722

2,84

03,

023

3,26

23,

503

Indu

stria

l ac

cide

nts

and

occu

patio

nal

dise

ases

. .

. . .

. . .

. . .

. .51

851

350

148

749

448

548

648

949

448

8In

tegr

atio

n al

low

ance

.

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

297

336

368

409

399

424

426

405

536

563

Oth

er s

ocia

l in

sura

nce

bene

fits(

9) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

17,8

0518

,966

19,8

4919

,903

20,6

2821

,607

22,9

3124

,369

25,4

8527

,067

of w

hich

:H

ealth

car

e . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

10,3

1411

,155

11,9

7311

,831

12,4

2213

,145

13,9

3414

,960

15,3

6916

,551

Fam

ily a

llow

ance

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3,

863

3,96

14,

105

4,17

94,

242

4,26

14,

324

4,44

64,

573

4,66

0O

ther

prim

ary

expe

nditu

re

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.41

,507

42,4

0743

,716

45,9

9947

,472

50,3

2452

,270

52,8

2556

,283

59,8

87C

ompe

nsat

ion

of e

mpl

oyee

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

23,1

5724

,109

24,5

9025

,424

26,1

3827

,304

28,2

9429

,549

31,1

8232

,323

Cur

rent

pur

chas

es o

f go

ods

and

serv

ices

. .

. . .

. . .

. . .

. . .

. . .

.5,

484

5,58

25,

929

6,34

26,

713

7,15

77,

597

8,14

58,

846

9,16

4Su

bsid

ies

to e

nter

pris

es .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2,

898

3,03

83,

234

3,03

23,

333

3,45

33,

692

4,00

44,

067

4,32

7C

urre

nt t

rans

fers

to

the

rest

of

the

wor

ld .

. . .

. . .

. . .

. . .

. . .

. .

1,03

089

21,

305

1,50

61,

673

1,78

11,

841

1,85

32,

112

2,42

1O

ther

cur

rent

tra

nsfe

rs

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .2,

999

3,16

73,

000

3,08

33,

099

3,15

63,

076

3,14

23,

193

3,31

4G

ross

fix

ed c

apita

l fo

rmat

ion

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

3,81

83,

557

3,37

03,

433

3,49

64,

224

4,48

93,

961

4,08

84,

252

Oth

er c

apita

l ex

pend

iture

(10)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2,

122

2,06

22,

289

3,17

93,

020

3,24

93,

280

2,17

22,

794

4,08

5N

et a

mou

nt e

xclu

ding

int

eres

t ch

arge

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.8,

950

9,93

810

,454

13,0

4115

,390

15,4

4017

,105

18,0

4815

,908

15,4

79In

tere

st c

harg

es

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .18

,716

18,7

0618

,326

17,3

0417

,046

16,4

7416

,800

16,7

8515

,809

15,0

46Fi

nanc

ing

requ

irem

ent

(–)

or c

apac

ity(1

0)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–9

,766

–8,7

68–7

,873

–4,2

63–1

,656

–1,0

3330

51,

263

9943

3

145

STATISTICAL ANNEX

TAB

LEX

IIIFI

NA

NC

ING

REQ

UIR

EMEN

T (–

) O

R C

APA

CIT

Y O

F G

ENER

AL

GO

VER

NM

ENT,

BY

SU

BSE

CTO

RS

(Mill

ions

of

euro

s)

Sour

ces:

NA

I, N

BB.

(1)

Incl

udin

g th

e pr

ocee

ds o

f th

e sa

le o

f U

MTS

lic

ence

s.(2

)In

clud

ing

the

capi

tal

tran

sfer

of

5 bi

llion

eur

o m

ade

by B

elga

com

in

retu

rn f

or t

he g

over

nmen

t’s

assu

mpt

ion

of i

ts p

ensi

on l

iabi

litie

s.

Entit

y I

Entit

y II

Gen

eral

gov

ernm

ent

Fede

ral

gove

rnm

ent

Soci

al s

ecur

ityTo

tal

Com

mun

ities

and

reg

ions

Loca

l au

thor

ities

Tota

l

1994

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–8

,978

1,00

1–7

,978

–1,6

85–1

03–1

,788

–9,7

66

1995

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–7

,772

–136

–7,9

08–1

,467

607

–861

–8,7

68

1996

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–7

,110

–476

–7,5

86–7

7548

8–2

87–7

,873

1997

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–5

,351

860

–4,4

91–1

9442

322

8–4

,263

1998

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–3

,703

1,03

8–2

,665

628

382

1,01

0–1

,656

1999

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–3

,714

1,59

5–2

,119

890

196

1,08

6–1

,033

2000

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–1

,125

1,43

030

556

8–5

680

305

2001

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–2

,250

(1)

1,78

0–4

69(1

)1,

920

–188

1,73

21,

263

(1)

2002

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–7

1482

911

5–4

6444

8–1

699

2003

e

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.70

6(2

)–1

,024

–318

(2)

319

433

751

433

(2)

146

TAB

LEX

IVC

ON

SOLI

DA

TED

GR

OSS

DEB

T O

F G

ENER

AL

GO

VER

NM

ENT

(1)

(End

-of-

perio

d ou

tsta

ndin

g am

ount

s, m

illio

ns o

f eu

ros)

Sour

ces:

FPS

Fin

ance

, N

BB.

(1)

Con

cept

use

d fo

r th

e im

plem

enta

tion

of t

he c

onve

rgen

ce c

riter

ia d

efin

ed i

n th

e Tr

eaty

on

Euro

pean

Uni

on.

(2)

In B

elgi

an f

ranc

s up

to

the

end

of 1

998

and

in e

uros

the

reaf

ter.

(3)

Trea

sury

cer

tific

ates

pre

sent

ed t

o th

e IM

F, c

apita

lised

int

eres

t on

cla

ssic

al l

oans

, ex

chan

ge v

aria

tions

on

oper

atio

ns c

once

rnin

g th

e m

anag

emen

t of

the

for

eign

cur

renc

y de

bt a

nd a

ccru

als

and

defe

rral

s re

latin

g to

the

fin

anci

al P

ost

Off

ice.

(4)

Mai

nly

the

debu

dget

ed T

reas

ury

debt

, th

e SH

LAF

and

CRE

DIB

E de

bts,

and

coi

ns i

n ci

rcul

atio

n.(5

)Fe

dera

l go

vern

men

t de

bt,

the

coun

terp

art

of w

hich

is

an a

sset

of

a fe

dera

l go

vern

men

t un

it.(6

)In

clud

ing

the

capi

talis

ed i

nter

est

on “

Silv

er F

und

Trea

sury

Bon

ds”.

(7)

Deb

t of

a g

ener

al g

over

nmen

t su

bsec

tor,

the

cou

nter

part

of

whi

ch i

s an

ass

et o

f an

othe

r ge

nera

l go

vern

men

t su

bsec

tor.

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

1.O

ffic

ial

debt

of

the

Trea

sury

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

231,

428

236,

230

238,

121

243,

082

241,

903

246,

755

251,

061

257,

163

262,

752

263,

018

In n

atio

nal

curr

ency

(2)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

197,

976

209,

325

219,

923

223,

637

224,

523

236,

314

242,

455

250,

085

257,

288

259,

295

At

up t

o on

e ye

ar

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.54

,296

43,0

9346

,420

47,8

9441

,888

36,5

5333

,310

34,8

5131

,115

30,2

22

At

over

one

yea

r .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.14

3,68

016

6,23

217

3,50

417

5,74

318

2,63

519

9,76

220

9,14

421

5,23

422

6,17

322

9,07

3

In f

orei

gn c

urre

ncie

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

33,4

5326

,905

18,1

9819

,444

17,3

8010

,441

8,60

67,

079

5,46

43,

724

2.C

ompo

nent

s of

the

off

icia

l de

bt o

f th

e Tr

easu

ry n

ot i

nclu

ded

in

the

cons

olid

ated

gro

ss d

ebt(

3)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

3,06

32,

707

2,76

73,

274

3,32

14,

595

5,42

94,

572

4,23

43,

727

3.O

ther

fed

eral

gov

ernm

ent

liabi

litie

s(4)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

9,06

39,

487

8,74

38,

320

8,34

58,

422

7,51

810

,281

9,55

5n.

4.C

onso

lidat

ion

betw

een

fede

ral g

over

nmen

t un

its(5

) .

. . .

. . .

. . .

.1,

127

925

3,04

72,

156

2,16

72,

696

3,10

86,

501

11,3

47n.

of w

hich

:

Silv

er F

und

asse

ts(6

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .–

––

––

––

374

1,08

74,

266

5.C

onso

lidat

ed g

ross

deb

t of

fed

eral

gov

ernm

ent

(1 –

2 +

3 –

4)

. .23

6,30

224

2,08

524

1,05

024

5,97

224

4,76

024

7,88

725

0,04

225

6,37

125

6,72

6n.

6.C

onso

lidat

ed g

ross

deb

t of

com

mun

ities

and

reg

ions

. .

. . .

. . .

. .13

,148

14,3

7615

,163

15,5

9715

,108

14,2

4513

,064

12,8

2312

,694

n.

7.C

onso

lidat

ed g

ross

deb

t of

loca

l aut

horit

ies

. . .

. . .

. . .

. . .

. . .

. .15

,082

14,7

4414

,556

13,7

9413

,905

13,8

0314

,652

14,9

7515

,396

n.

8.C

onso

lidat

ed g

ross

deb

t of

soc

ial s

ecur

ity .

. . .

. . .

. . .

. . .

. . .

. . .

2,42

12,

608

1,87

92,

117

1,77

41,

429

1,23

70

103

n.

9.C

onso

lidat

ion

betw

een

the

gene

ral g

over

nmen

t su

bsec

tors

(7) .

. . .

1,98

52,

976

3,25

26,

508

6,27

26,

662

7,76

28,

711

9,17

2n.

10.

Con

solid

ated

gro

ss d

ebt

of g

ener

al g

over

nmen

t(1)

(5 +

6 +

7 +

8 –

9)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .26

4,96

927

0,83

626

9,39

727

0,97

226

9,27

627

0,70

227

1,23

427

5,45

727

5,74

826

9,92

4 e

147

STATISTICAL ANNEX

TAB

LEX

VC

UR

REN

T A

ND

CA

PITA

L TR

AN

SAC

TIO

NS

OF

BEL

GIU

M O

N A

TR

AN

SAC

TIO

N B

ASI

S

(Mill

ions

of

euro

s)

Sour

ce: N

BB.

Firs

t ni

ne m

onth

s

2001

2002

2003

Cre

dits

Deb

itsBa

lanc

esC

redi

tsD

ebits

Bala

nces

Cre

dits

Deb

itsBa

lanc

es

1.To

tal

curr

ent

tran

sact

ions

on

a tr

ansa

ctio

n ba

sis

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

263,

959

254,

227

9,73

226

1,69

724

7,65

714

,040

195,

413

189,

127

6,28

6

Goo

ds a

nd s

ervi

ces

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.21

7,54

220

9,38

28,

160

218,

037

206,

648

11,3

8916

3,34

315

6,33

07,

013

Goo

ds

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

178,

119

171,

887

6,23

217

8,26

216

8,92

29,

340

134,

764

128,

489

6,27

5G

ener

al m

erch

andi

se

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .16

0,27

015

6,38

93,

881

162,

211

154,

685

7,52

612

4,56

811

9,72

54,

843

Goo

ds f

or p

roce

ssin

g .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.16

,180

14,6

311,

549

14,6

0313

,457

1,14

69,

159

8,17

698

3Re

pairs

to

good

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.42

337

647

296

251

4516

113

427

Purc

hase

s of

goo

ds i

n po

rts

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

959

489

470

1,04

539

565

083

333

749

6N

on-m

onet

ary

gold

.

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .28

72

285

107

134

–27

4311

7–7

4Se

rvic

es

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

39,4

2337

,495

1,92

839

,775

37,7

262,

049

28,5

7927

,841

738

Tran

spor

t .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.10

,534

8,87

21,

662

9,00

28,

091

911

6,04

55,

635

410

Trav

el

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .7,

695

10,9

20–3

,225

7,10

810

,708

–3,6

005,

513

8,51

7–3

,004

Com

mun

icat

ions

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1,

548

1,19

735

11,

734

1,36

037

41,

105

826

279

Build

ing

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

973

566

407

1,33

874

459

41,

057

612

445

Insu

ranc

e .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.48

858

0–9

250

547

530

448

388

60Fi

nanc

ial

serv

ices

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2,

348

2,52

7–1

792,

329

2,44

4–1

151,

607

1,72

5–1

18D

ata-

proc

essi

ng a

nd i

nfor

mat

ion

serv

ices

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

2,12

21,

444

678

1,98

91,

480

509

1,43

791

552

2Fe

es a

nd l

icen

ce d

ues

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .79

31,

139

–346

718

838

–120

556

678

–122

Oth

er s

ervi

ces

to e

nter

pris

es .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

11,2

519,

271

1,98

012

,968

10,5

832,

385

9,48

87,

801

1,68

7of

whi

ch:

Mer

chan

ting

(net

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

473

–47

31,

510

–1,

510

1,30

4–

1,30

4Pe

rson

al,

cultu

ral

and

leis

ure

serv

ices

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

374

457

–83

301

398

–97

205

251

–46

Serv

ices

pro

vide

d or

rec

eive

d by

gen

eral

gov

ernm

ent,

not

inc

lude

d el

sew

here

1,29

752

277

51,

783

605

1,17

81,

118

493

625

Inco

mes

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

40,3

6334

,446

5,91

738

,074

30,8

177,

257

28,2

5024

,049

4,20

1Ea

rned

inc

omes

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

4,

442

1,35

53,

087

4,74

21,

440

3,30

23,

494

1,07

02,

424

Inco

me

from

dire

ct a

nd p

ortf

olio

inv

estm

ent

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.35

,921

33,0

912,

830

33,3

3229

,377

3,95

524

,756

22,9

791,

777

Cur

rent

tra

nsfe

rs

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

6,05

410

,399

–4,3

455,

586

10,1

92–4

,606

3,82

08,

748

–4,9

28G

ener

al g

over

nmen

t .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1,80

85,

160

–3,3

521,

694

5,41

8–3

,724

954

4,70

0–3

,746

Oth

er s

ecto

rs

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.4,

246

5,23

9–9

933,

892

4,77

4–8

822,

866

4,04

8–1

,182

2.To

tal

capi

tal

tran

sact

ions

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.35

363

9–2

8620

690

1–6

9515

698

0–8

24

Cap

ital

tran

sfer

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

221

547

–326

178

814

–636

153

915

–762

Acq

uisi

tions

and

dis

posa

ls o

f no

n-pr

oduc

ed n

on-f

inan

cial

ass

ets

. . .

. . .

. . .

. . .

. .

132

9240

2887

–59

365

–62

3.N

et l

endi

ng t

o th

e re

st o

f th

e w

orld

(1

+ 2

) . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.26

4,31

225

4,86

69,

446

261,

903

248,

558

13,3

4519

5,56

919

0,10

75,

462

148

TAB

LEX

VI

FOR

MA

TIO

N O

F FI

NA

NC

IAL

ASS

ETS

AN

D N

EW F

INA

NC

IAL

LIA

BIL

ITIE

S O

F IN

DIV

IDU

ALS

(Mill

ions

of

euro

s)

Sour

ce: N

BB.

(1)

Excl

udin

g in

sura

nce

bond

s.(2

)In

clud

ing

real

est

ate

cert

ifica

tes.

(3)

Insu

ranc

e te

chni

cal

rese

rves

and

bon

ds.

(4)

Inst

rum

ents

who

se m

atur

ity i

s no

t kn

own

and

erro

rs a

nd o

mis

sion

s.(5

)Th

is i

tem

com

pris

es o

ther

acc

ount

s pa

yabl

e w

ithin

the

mea

ning

of

the

ESA

95.

(6)

The

bala

nces

of

the

finan

cial

acc

ount

s of

the

dom

estic

sec

tors

do

not

corr

espo

nd t

o th

e ne

t fin

anci

ng c

apac

ities

or

requ

irem

ents

as

reco

rded

in t

he r

eal a

ccou

nts,

ow

ing

to t

he d

iffer

ence

s be

twee

n th

e da

tes

of r

ecor

ding

of

the

tran

sact

ions

in t

hese

tw

o ac

coun

ts,

stat

istic

al a

djus

tmen

ts o

r er

rors

and

om

issi

ons.

Thu

s, f

or e

xam

ple,

the

fin

anci

al a

ccou

nts

cann

ot,

for

lack

of

data

, re

cord

mos

t of

the

tra

de c

redi

ts a

nd a

dvan

ces.

Firs

t ni

ne m

onth

sp.

m.

Out

stan

ding

am

ount

at

the

end

of

Sept

embe

r 20

03 e

1994

1995

1996

1997

1998

1999

2000

2001

2002

2002

2003

e

Form

atio

n of

fin

anci

al a

sset

s .

. . .

. . .

. . .

. . .

. . .

. . .

24,3

0420

,789

28,1

2828

,538

28,3

5925

,772

19,9

2219

,425

26,0

3317

,546

16,6

9166

9,67

5

At

up t

o on

e ye

ar .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–4

,859

–2,4

338,

016

7,22

53,

914

2,81

87,

727

11,6

7910

,701

1,68

612

,800

213,

798

Not

es,

coin

s an

d si

ght

depo

sits

. .

. . .

. . .

. . .

. . .

313

567

253

1,28

91,

236

3,77

52,

117

–3,6

064,

018

2,30

32,

817

38,3

46

Savi

ng d

epos

its

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .11

,052

9,98

710

,719

7,88

14,

520

3,42

2–5

,129

5,55

411

,543

3,02

012

,134

119,

545

Tim

e de

posi

ts

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–2,6

47–7

,976

294

1,05

330

0–3

,240

11,0

768,

555

–4,5

32–3

,742

–1,3

5552

,023

Fixe

d-in

com

e se

curit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. .

–9,6

36–4

,135

–2,3

44–8

53–4

84–1

3525

257

5–1

,258

–1,1

82–2

8682

2

Uni

ts o

f m

onet

ary

UC

Is .

. . .

. . .

. . .

. . .

. . .

. . .

.–3

,940

–877

–906

–2,1

45–1

,660

–1,0

05–5

8960

193

01,

286

–510

3,06

2

At

over

one

yea

r . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.25

,459

18,3

4818

,578

18,6

0533

,878

27,2

2819

,195

27,9

6415

,749

14,0

535,

142

460,

494

Tim

e de

posi

ts

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

948

1,52

816

727

1–2

79–2

38–4

6122

6–5

04–4

48–5

424,

109

Fixe

d-in

com

e se

curit

ies(

1) .

. . .

. . .

. . .

. . .

. . .

. . .

12,9

859,

156

4,55

2–2

,092

546

4,53

7–2

,276

3,60

1–2

,606

665

–13,

853

134,

902

Shar

es a

nd o

ther

equ

ity(2

) . .

. . .

. . .

. . .

. . .

. . .

.1,

058

549

2,58

92,

751

6,90

210

656

078

917

8887

086

,215

Uni

ts o

f no

n-m

onet

ary

UC

Is

. . .

. . .

. . .

. . .

. . .

.6,

426

929

4,73

29,

282

17,5

8410

,687

11,8

2210

,440

4,86

04,

108

4,12

098

,875

Inve

stm

ents

with

the

ins

uran

ce c

ompa

nies

and

pe

nsio

n fu

nds(

3) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

4,04

36,

186

6,53

88,

393

9,12

612

,136

9,55

013

,619

13,0

829,

640

14,5

4613

6,39

3

Oth

er a

sset

s(4) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3,

704

4,87

51,

533

2,70

8–9

,433

–4,2

74–7

,000

–20,

217

–416

1,80

7–1

,250

–4,6

16

New

fin

anci

al l

iabi

litie

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.4,

107

2,42

25,

165

7,16

55,

936

5,19

22,

110

–1,9

653,

228

1,22

22,

467

111,

846

Loan

s at

up

to o

ne y

ear

. . .

. . .

. . .

. . .

. . .

. . .

. . .

97–2

4536

2–3

557

31,

585

–698

–1,2

2424

178

–679

4,89

7

Loan

s at

ove

r on

e ye

ar

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.4,

537

2,16

84,

019

5,60

15,

305

2,90

73,

223

707

3,53

02,

090

4,52

510

0,49

9

Mor

tgag

e lo

ans

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .3,

523

2,11

52,

916

3,63

62,

874

5,53

22,

632

621

4,41

53,

068

4,37

980

,539

Inst

alm

ent

loan

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

84–1

0241

459

31,

258

139

328

248

59–2

77–1

828,

745

Oth

er .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

931

154

689

1,37

21,

174

–2,7

6326

3–1

62–9

44–7

0032

811

,215

Oth

er l

iabi

litie

s(5) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

–527

500

784

1,59

958

700

–415

–1,4

47–5

43–9

47–1

,380

6,45

0

Fina

ncia

l ba

lanc

e(6

) . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.20

,198

18,3

6722

,963

21,3

7322

,424

20,5

8017

,811

21,3

9022

,806

16,3

2414

,225

557,

829

149

STATISTICAL ANNEX

TAB

LEX

VII

FOR

MA

TIO

N O

F FI

NA

NC

IAL

ASS

ETS

AN

D N

EW F

INA

NC

IAL

LIA

BIL

ITIE

S O

F N

ON

-FIN

AN

CIA

L C

OR

POR

ATI

ON

S

(Mill

ions

of

euro

s)

Sour

ce: N

BB.

(1)

See

note

4 t

o ta

ble

XV

I.(2

)Se

e no

te 5

to

tabl

e X

VI.

(3)

See

note

6 t

o ta

ble

XV

I.

Firs

t ni

ne m

onth

sp.

m.

Out

stan

ding

am

ount

at

the

end

of

Sept

embe

r 20

03 e

1994

1995

1996

1997

1998

1999

2000

2001

2002

2002

2003

e

Form

atio

n of

fin

anci

al a

sset

s .

. . .

. . .

. . .

. . .

. . .

. . .

6,43

114

,499

14,3

0815

,987

16,7

8323

,730

33,1

9221

,074

14,3

1812

,528

–570

521,

327

At

up t

o on

e ye

ar .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. 52

54,

400

7,13

42,

288

10,7

379,

587

–4,4

331,

912

4,90

41,

265

4,33

770

,749

Not

es,

coin

s an

d si

ght

depo

sits

. .

. . .

. . .

. . .

. . .

–405

2,11

02,

016

1,65

83,

437

1,67

622

1,52

6–5

3793

91,

258

23,3

59

Oth

er d

epos

its .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

670

2,06

93,

971

165

5,08

69,

274

–4,7

6166

05,

570

–426

3,34

243

,491

Oth

er .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

260

221

1,14

646

52,

215

–1,3

6430

6–2

73–1

3075

3–2

643,

899

At

over

one

yea

r . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–1

,441

5,33

21,

743

2,39

615

,668

10,8

6042

,178

19,7

105,

717

5,36

911

,298

454,

031

Shar

es a

nd o

ther

equ

ity

. . .

. . .

. . .

. . .

. . .

. . .

.–1

,140

–61

619

–1,8

094,

540

–1,1

2615

,764

–1,9

6839

24,

888

–6,2

0231

8,71

4

Fixe

d-in

com

e se

curit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. .

–211

–333

135

1,52

61,

067

507

–949

3,20

51,

127

14–2

1110

,423

Oth

er .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–90

5,72

798

92,

678

10,0

6211

,479

27,3

6318

,473

4,19

846

717

,710

124,

894

Oth

er a

sset

s(1) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.7,

348

4,76

75,

432

11,3

03–9

,623

3,28

3–4

,553

–548

3,69

65,

894

–16,

204

–3,4

52

New

fin

anci

al l

iabi

litie

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.6,

951

14,1

3418

,467

20,4

2125

,386

30,8

4540

,892

33,0

8323

,798

16,7

7779

671

8,93

2

At

up t

o on

e ye

ar .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1,

246

2,77

53,

674

1,92

86,

279

8,56

03,

728

484

1,54

7–1

17–2

,637

60,8

94

Loan

s gr

ante

d by

cre

dit

inst

itutio

ns .

. . .

. . .

. . .

.82

13,

006

3,80

21,

832

5,78

07,

306

416

–2,1

51–8

43–1

,052

–3,4

1748

,270

Oth

er l

oans

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–380

–90

–381

–196

–207

–154

161

1,07

116

290

–1,2

401,

265

Fixe

d-in

com

e se

curit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. .

805

–140

253

292

706

1,40

83,

151

1,56

52,

228

845

2,02

011

,360

At

over

one

yea

r . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.5,

478

11,0

9812

,078

16,2

3018

,057

19,6

0536

,390

31,4

6520

,739

15,6

663,

716

632,

393

Loan

s gr

ante

d by

cre

dit

inst

itutio

ns .

. . .

. . .

. . .

.11

932

1,14

42,

362

2,09

94,

980

3,50

63,

755

3,25

73,

272

–1,7

2964

,952

Oth

er l

oans

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

614

3,82

24,

143

5,42

74,

597

1,30

08,

734

–4,1

736,

853

3,40

61,

885

50,7

06

Shar

es a

nd o

ther

equ

ity

. . .

. . .

. . .

. . .

. . .

. . .

.5,

950

5,91

54,

748

8,21

810

,090

12,1

2424

,850

26,2

358,

689

7,22

32,

284

497,

624

Fixe

d-in

com

e se

curit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. .

–1,2

051,

330

2,04

322

21,

271

1,20

1–7

005,

649

1,94

11,

765

1,27

619

,111

Oth

er l

iabi

litie

s(2) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

226

260

2,71

52,

264

1,05

02,

681

774

1,13

31,

512

1,22

9–2

8425

,645

Fina

ncia

l ba

lanc

e(3

) . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–5

1936

6–4

,159

–4,4

35–8

,603

–7,1

16–7

,700

–12,

008

–9,4

80–4

,249

–1,3

65–1

97,6

05

150

TAB

LEX

VIII

FOR

MA

TIO

N O

F FI

NA

NC

IAL

ASS

ETS

AN

D N

EW F

INA

NC

IAL

LIA

BIL

ITIE

S O

F G

ENER

AL

GO

VER

NM

ENT

(Mill

ions

of

euro

s)

Sour

ce: N

BB.

(1)

Shar

es a

nd o

ther

equ

ity,

units

of

UC

Is,

finan

cial

der

ivat

ives

and

oth

er a

ccou

nts

rece

ivab

le.

(2)

In B

elgi

an f

ranc

s up

to

the

end

of 1

998

and

in e

uros

the

reaf

ter.

(3)

See

note

6 t

o ta

ble

XV

I.

Firs

t ni

ne m

onth

sp.

m.

Out

stan

ding

am

ount

at

the

end

of

Sept

embe

r 20

0319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0220

03

Form

atio

n of

fin

anci

al a

sset

s .

. . .

. . .

. . .

. . .

. . .

. . .

–2,9

25–2

,187

–4,9

83–9

44–1

,044

2,07

41,

631

4,99

04,

434

–995

–2,5

0750

,481

Dep

osits

, lo

ans

and

secu

ritie

s ot

her

than

sha

res

. . .

–3,3

74–2

,404

1,82

523

117

21,

720

1,93

63,

591

5,00

082

–627

33,0

19

With

gen

eral

gov

ernm

ent

. . .

. . .

. . .

. . .

. . .

. . .

–2,2

8178

62,

603

2,18

519

709

1,60

84,

455

5,15

3–1

,052

–1,7

9018

,784

With

oth

er s

ecto

rs .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

–1,0

94–3

,189

–778

–1,9

5515

41,

011

329

–864

–153

1,13

41,

163

14,2

35

Oth

er f

inan

cial

ass

ets(

1) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

449

217

–6,8

07–1

,175

–1,2

1635

4–3

061,

399

–565

–1,0

77–1

,880

17,4

61

New

fin

anci

al l

iabi

litie

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.6,

120

5,31

03,

342

3,79

180

12,

855

2,02

54,

526

4,94

785

82,

647

310,

813

In n

atio

nal

curr

ency

(2)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .9,

893

11,7

9811

,623

3,82

02,

871

2,96

03,

874

5,90

26,

161

1,69

21,

900

304,

942

At

up t

o on

e ye

ar

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

10,2

51–9

,726

5,20

889

4–5

,283

–5,2

78–4

,725

–1,0

95–2

9433

41,

574

48,5

34

of w

hich

:Tr

easu

ry C

ertif

icat

es .

. . .

. . .

. . .

. . .

. . .

. . .

10,4

59–9

,373

3,88

355

0–5

,831

–6,8

07–3

,483

1,38

356

3,43

43,

400

30,4

03

Oth

er s

ecur

ities

. .

. . .

. . .

. . .

. . .

. . .

. . .

. .

234

690

438

637

1,14

6–2

21–7

63–2

,214

–186

–207

213

2,29

3

At

over

one

yea

r . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

–359

21,5

246,

414

2,92

58,

154

8,23

88,

599

6,99

76,

455

1,35

832

625

6,40

8

of w

hich

:Li

near

bon

ds

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

19,6

0516

,314

8,07

34,

329

8,55

214

,455

15,0

7212

,570

11,6

287,

207

5,53

020

2,88

5

Oth

er s

ecur

ities

. .

. . .

. . .

. . .

. . .

. . .

. . .

. .

–22,

161

6,89

2–1

,185

392

139

–5,2

69–6

,580

–6,3

21–6

,046

–6,0

66–5

,089

22,8

81

In f

orei

gn c

urre

ncie

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–3

,773

–6,4

88–8

,281

–29

–2,0

69–1

05–1

,849

–1,3

77–1

,214

–834

747

5,87

1

At

up t

o on

e ye

ar

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–5,5

34–8

,004

–5,1

79–6

04–8

871,

517

–397

372

–164

216

780

2,50

3

At

over

one

yea

r . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

1,76

21,

515

–3,1

0257

5–1

,183

–1,6

22–1

,452

–1,7

48–1

,050

–1,0

50–3

23,

368

Fina

ncia

l ba

lanc

e(3

) . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–9

,045

–7,4

97–8

,324

–4,7

35–1

,845

–781

–394

465

–512

–1,8

52–5

,155

–260

,332

151

STATISTICAL ANNEX

TAB

LEX

IXFO

RM

ATI

ON

OF

FIN

AN

CIA

L A

SSET

S A

ND

NEW

FIN

AN

CIA

L LI

AB

ILIT

IES

OF

MO

NET

AR

Y F

INA

NC

IAL

INST

ITU

TIO

NS

(1)

(Dat

a on

a t

errit

oria

l ba

sis,

mill

ions

of

euro

s)

Sour

ce: N

BB.

(1)

Cre

dit

inst

itutio

ns,

mon

etar

y U

CIs

and

mon

etar

y au

thor

ities

.(2

) St

atis

tical

adj

ustm

ents

are

due

to

the

equa

lisat

ion

of t

he t

otal

of

finan

cial

ass

ets

and

finan

cial

lia

bilit

ies,

Bel

gian

MFI

s be

ing

trea

ted

as p

ure

finan

cial

int

erm

edia

ries.

Firs

t ni

ne m

onth

sp.

m.

Out

stan

ding

am

ount

at

the

end

of

Sept

embe

r 20

03 e

1994

1995

1996

1997

1998

1999

2000

2001

2002

2002

2003

e

Form

atio

n of

fin

anci

al a

sset

sIn

terb

ank

clai

ms

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

11,6

5022

,434

13,6

78–2

,675

–508

5,84

8–4

7,76

869

815

,582

24,4

0110

,630

204,

594

Belg

ian

MFI

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1,77

611

,899

14,9

81–5

,923

2,08

34,

291

–26,

420

–5,4

20–7

,154

–5,9

79–3

5137

,069

Fore

ign

MFI

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

9,87

410

,535

–1,3

033,

248

–2,5

911,

557

–21,

348

6,11

822

,736

30,3

8010

,981

167,

525

Loan

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.12

,124

–445

2,30

43,

501

6,55

818

,186

11,2

1813

,132

22,2

435,

589

3,52

428

4,12

7of

whi

ch:

Indi

vidu

als

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.4,

527

2,02

04,

316

5,14

64,

913

4,99

92,

051

763,

284

1,87

93,

810

90,1

78N

on-f

inan

cial

cor

pora

tions

. .

. . .

. . .

. . .

. . .

. .1,

337

1,66

73,

218

1,38

63,

026

7,94

21,

090

161

–334

373

–3,7

7485

,987

Fixe

d-in

com

e se

curit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.9,

219

13,7

3319

,046

8,20

11,

622

13,4

64–1

2,48

927

,806

–11,

353

–14,

418

847

220,

134

of w

hich

:G

ener

al g

over

nmen

t .

. . .

. . .

. . .

. . .

. . .

. . .

.11

,212

8,09

47,

200

519

1,27

6–1

3,23

7–1

8,72

0–9

,801

–7,8

10–1

0,35

2–5

,670

74,9

90Re

st o

f th

e w

orld

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–2,1

185,

462

6,34

68,

551

3,42

825

,291

5,91

738

,209

–2,4

21–2

,980

6,10

613

9,42

9O

ther

ass

ets

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

–2,5

475,

046

4,93

58,

571

3,30

313

,143

7,64

914

,914

–1,4

649,

528

10,4

6310

8,50

3To

tal

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

30,4

4640

,769

39,9

6417

,597

10,9

7550

,641

–41,

389

56,5

5025

,007

25,1

0025

,465

817,

359

Indi

vidu

als

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

3,82

22,

277

5,13

66,

442

4,42

15,

260

1,80

4–1

,777

3,08

21,

668

3,46

591

,273

Non

-fin

anci

al c

orpo

ratio

ns .

. . .

. . .

. . .

. . .

. . .

. .

–182

2,75

64,

490

4,91

33,

902

7,98

82,

246

–117

–2,9

87–1

,187

–2,9

7991

,322

Gen

eral

gov

ernm

ent

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.12

,566

415

2,21

2–2

,510

1,01

1–1

3,81

2–1

9,55

5–1

1,65

1–9

,188

–12,

321

–5,4

8010

5,19

2Fi

nanc

ial

inst

itutio

ns

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2,

683

12,6

5221

,115

–6,1

43–1

,519

12,8

48–2

4,99

76,

515

–4,0

762,

446

9,91

710

7,19

2Re

st o

f th

e w

orld

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.11

,557

22,6

687,

011

14,8

963,

160

38,3

58–8

8763

,580

38,1

7634

,494

20,5

4142

2,38

0

New

fin

anci

al l

iabi

litie

sIn

terb

ank

liabi

litie

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

8,23

525

,906

13,9

80–5

,665

3,23

017

,685

–57,

802

17,5

9953

57,

501

15,2

2825

7,43

4Be

lgia

n M

FIs

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1,

776

11,8

9914

,981

–5,9

232,

083

4,29

1–2

6,42

0–5

,420

–7,1

54–5

,979

–351

37,0

69Fo

reig

n M

FIs

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.6,

459

14,0

07–1

,001

259

1,14

713

,394

–31,

381

23,0

197,

689

13,4

8015

,579

220,

364

Dep

osits

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.10

,067

11,5

0118

,122

17,4

3319

,034

13,9

01–3

,396

18,0

2414

,628

9,06

716

,472

311,

743

of w

hich

:In

divi

dual

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

5,18

44,

516

7,95

48,

464

7,59

54,

063

346

5,81

47,

198

–298

6,54

316

4,30

6N

on-f

inan

cial

cor

pora

tions

. .

. . .

. . .

. . .

. . .

. .–1

,344

1,54

15,

644

3,23

05,

747

5,18

3–3

,946

1,40

1–1

,205

682

–3,1

8739

,406

Fixe

d-in

com

e se

curit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3,

435

–213

4,17

9–7

,517

–12,

447

–706

4,79

0–5

,682

–4,1

70–2

,115

–9,0

9066

,568

Savi

ngs

note

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .2,

524

256

–3,3

03–8

,532

–7,3

32–5

,905

–3,0

51–4

,790

–4,0

33–2

,661

–5,5

8647

,067

Oth

er f

ixed

-inco

me

secu

ritie

s .

. . .

. . .

. . .

. . .

. .91

1–4

697,

482

1,01

4–5

,115

5,19

97,

841

–892

–136

545

–3,5

0419

,501

Oth

er l

iabi

litie

s an

d st

atis

tical

adj

ustm

ents

(2)

. . .

. .

8,70

93,

574

3,68

313

,346

1,15

819

,761

15,0

1926

,609

14,0

1410

,647

2,85

518

1,61

3To

tal

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

30,4

4640

,769

39,9

6417

,597

10,9

7550

,641

–41,

389

56,5

5025

,007

25,1

0025

,465

817,

359

Indi

vidu

als

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

7,86

95,

065

6,32

3–7

0654

375

9–9

96–1

,020

5,44

9–5

2713

923

3,82

6N

on-f

inan

cial

cor

pora

tions

. .

. . .

. . .

. . .

. . .

. . .

.1,

500

1,24

79,

371

9,96

3–1

2,10

612

,129

–6,2

532,

221

3,72

02,

826

–6,5

3256

,506

Gen

eral

gov

ernm

ent

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–7

31–3

,395

–7,5

53–1

,367

–1,8

3719

630

615

5–1

,200

138

456

6,55

6Fi

nanc

ial

inst

itutio

ns

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3,

332

13,5

8524

,563

–4,2

8618

,879

16,2

64–1

9,72

310

,264

–1,4

524,

092

14,4

6315

7,54

3Re

st o

f th

e w

orld

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.18

,476

24,2

667,

260

13,9

935,

496

21,2

94–1

4,72

344

,930

18,4

9018

,571

16,9

3936

2,92

7

152

TAB

LEX

XFO

RM

ATI

ON

OF

ASS

ETS

AN

D N

EW L

IAB

ILIT

IES

OF

FIN

AN

CIA

L IN

TER

MED

IAR

IES

OTH

ER T

HA

N M

ON

ETA

RY

IN

STIT

UTI

ON

S

(Mill

ions

of

euro

s)

Sour

ces:

Bel

gian

Pen

sion

Fun

ds A

ssoc

iatio

n, B

elgi

an A

ssoc

iatio

n of

Und

erta

king

s fo

r C

olle

ctiv

e In

vest

men

t, B

FC,

ISO

, N

BB.

(1)

Incl

udin

g re

al e

stat

e ce

rtifi

cate

s.(2

)Th

e st

atis

tical

adj

ustm

ents

are

due

to

the

equa

lisat

ion

of t

he t

otal

of

finan

cial

ass

ets

and

finan

cial

lia

bilit

ies,

Bel

gian

fin

anci

al i

nter

med

iarie

s be

ing

trea

ted

as p

ure

finan

cial

int

erm

edia

ries.

(3)

Und

erta

king

s fo

r in

vest

men

t in

cla

ims,

inv

estm

ent

fund

s w

ith f

ixed

cap

ital

inve

stin

g in

rea

l es

tate

(Si

cafi)

, pr

ivat

e cl

osed

-end

equ

ity f

unds

whi

ch i

nves

t in

unq

uote

d co

mpa

nies

and

gro

wth

sto

cks

(Pric

af),

finan

cial

hol

ding

cor

pora

tions

, br

oker

age

firm

s, m

ortg

age

com

pani

es a

nd r

egio

nal

soci

al h

ousi

ng c

ompa

nies

.

Firs

t ni

ne m

onth

sp.

m.

Out

stan

ding

am

ount

at

the

end

of

Sept

embe

r 20

03 e

1994

1995

1996

1997

1998

1999

2000

2001

2002

2002

2003

e

Non

-mon

etar

y U

CIs

Form

atio

n of

fin

anci

al a

sset

s . .

. . .

. . .

. . .

. . .

. . .

.3,

318

1,35

92,

981

6,10

613

,709

14,8

5018

,524

12,1

103,

886

3,87

42,

098

78,5

67D

epos

its .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.58

042

91,

320

2,64

95,

091

5,13

11,

600

2,95

03,

404

2,51

71,

472

25,0

62Fi

xed-

inco

me

secu

ritie

s .

. . .

. . .

. . .

. . .

. . .

. . .

.1,

417

797

953

1,60

42,

278

2,02

44,

298

1,56

812

811

–1,0

9118

,044

Shar

es a

nd o

ther

equ

ity(1

) . .

. . .

. . .

. . .

. . .

. . .

.1,

226

–54

1596

23,

749

5,76

89,

630

5,44

41,

753

3,01

934

525

,705

UC

I un

its .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

107

219

161

662

1,77

02,

255

3,33

61,

963

–2,6

57–2

,163

161

6,73

9O

ther

fin

anci

al a

sset

s .

. . .

. . .

. . .

. . .

. . .

. . .

. .–1

3–3

153

122

982

1–3

28–3

4018

71,

259

489

1,21

13,

017

New

fin

anci

al l

iabi

litie

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

3,31

81,

359

2,98

16,

106

13,7

0914

,850

18,5

2412

,110

3,88

63,

874

2,09

878

,567

UC

I un

its h

eld

by B

elgi

an i

ndiv

idua

ls .

. . .

. . .

. . .

2,93

11,

129

2,66

75,

472

12,5

3011

,765

12,8

629,

356

5,42

84,

824

2,72

564

,480

UC

I un

its h

eld

by o

ther

inv

esto

rs

. . .

. . .

. . .

. . .

387

231

314

633

1,17

93,

085

5,66

22,

754

–1,5

41–9

50–6

2714

,087

Insu

ranc

e co

mpa

nies

and

pen

sion

fun

dsFo

rmat

ion

of f

inan

cial

ass

ets

. . .

. . .

. . .

. . .

. . .

. . .

4,00

24,

161

5,09

76,

332

7,24

710

,996

7,91

812

,069

12,7

078,

610

14,1

6613

5,72

6D

epos

its .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.13

617

743

634

6–5

82–7

670

833

471

150

322

23,

757

Fixe

d-in

com

e se

curit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. .

1,88

73,

855

2,85

83,

114

3,63

83,

494

1,79

84,

262

4,62

72,

230

12,1

2767

,988

Loan

s . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

–155

–94

–307

–452

–464

–261

278

842

706

431

–265

6,33

9Sh

ares

and

oth

er e

quity

. .

. . .

. . .

. . .

. . .

. . .

. .

982

1,21

91,

729

3,14

54,

309

3,31

223

73,

343

3,39

03,

505

–798

21,8

02U

CI

units

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .11

3–2

4533

136

972

93,

778

4,01

93,

407

1,44

472

62,

710

21,7

66O

ther

fin

anci

al a

sset

s an

d st

atis

tical

adj

ustm

ents

(2)

1,03

9–7

5049

–190

–383

750

878

–120

1,82

81,

215

171

14,0

74N

ew f

inan

cial

lia

bilit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.4,

002

4,16

15,

097

6,33

27,

247

10,9

967,

918

12,0

6912

,707

8,61

014

,166

135,

726

Net

equ

ity o

f ho

useh

olds

in li

fe in

sura

nce

rese

rves

an

d pe

nsio

n fu

nds

rese

rves

. .

. . .

. . .

. . .

. . .

.2,

760

3,56

24,

280

5,58

76,

618

9,55

57,

647

10,7

1710

,445

7,94

912

,848

104,

026

Oth

er i

nsur

ance

tec

hnic

al r

eser

ves

. . .

. . .

. . .

. .

1,07

353

194

572

166

663

820

21,

356

634

–378

221

,383

Oth

er f

inan

cial

lia

bilit

ies

. . .

. . .

. . .

. . .

. . .

. . .

.16

968

–127

24–3

780

370

–51,

629

664

535

10,3

17

Oth

er(3

)

Form

atio

n of

fin

anci

al a

sset

s . .

. . .

. . .

. . .

. . .

. . .

.1,

201

289

5,61

83,

252

29,6

6916

,779

5,91

56,

022

6,06

32,

308

3,12

311

1,59

9D

epos

its .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.–3

019

11,

014

–1,0

4531

770

412

869

5–2

66–5

052,

752

6,53

2Lo

ans

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.68

870

657

1,76

01,

691

131

1,92

31,

326

2,01

4–8

111

821

,536

Shar

es a

nd o

ther

equ

ity

. . .

. . .

. . .

. . .

. . .

. . .

.45

614

92,

942

2,69

927

,153

15,9

203,

004

2,04

43,

530

2,26

6–7

7174

,956

Oth

er f

inan

cial

ass

ets

and

stat

istic

al a

djus

tmen

ts(2

)86

–121

1,00

5–1

6250

823

860

1,95

678

662

81,

025

8,57

5N

ew f

inan

cial

lia

bilit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.1,

201

289

5,61

83,

252

29,6

6916

,779

5,91

56,

022

6,06

32,

308

3,12

311

1,59

9Lo

ans

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.48

6–2

4910

840

4–3

071,

229

2,13

73,

575

133

200

6,52

424

,139

Shar

es a

nd o

ther

equ

ity

. . .

. . .

. . .

. . .

. . .

. . .

.36

521

14,

821

873

27,9

2512

,679

4,38

71,

117

2,67

81,

717

–491

76,2

76O

ther

fin

anci

al l

iabi

litie

s an

d st

atis

tical

ad

just

men

ts(2

) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

350

327

688

1,97

42,

051

2,87

1–6

091,

330

3,25

239

2–2

,910

11,1

84

153

STATISTICAL ANNEX

TAB

LEX

XI

NET

ISS

UES

OF

SEC

UR

ITIE

S(1

) BY

FIN

AN

CIA

L(2

) AN

D N

ON

-FIN

AN

CIA

L C

OR

POR

ATI

ON

S A

ND

GEN

ERA

L G

OV

ERN

MEN

T

(Mill

ions

of

euro

s)

Sour

ces:

BFC

, Eu

rone

xt B

russ

els,

NBB

.(1

)Ex

clud

ing

deriv

ativ

es,

real

est

ate

cert

ifica

tes

and

units

of

UC

I’s(2

)Ex

clud

ing

the

Euro

syst

em.

Firs

t ni

ne m

onth

sp.

m.

Out

stan

ding

am

ount

at

the

end

of

Sept

embe

r 20

03 e

1994

1995

1996

1997

1998

1999

2000

2001

2002

2002

2003

e

Fixe

d-in

com

e se

curit

ies

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

13,1

6017

,088

10,5

2377

6–6

583,

829

9,16

26,

167

4,97

54,

374

–2,5

7436

6,36

0

Fina

ncia

l an

d no

n-fin

anci

al c

orpo

ratio

ns .

. . .

. . .

. .

3,01

81,

003

1,08

9–5

,661

–2,5

702,

458

6,74

21,

420

737

968

–7,3

6610

2,03

3

Secu

ritie

s at

up

to o

ne y

ear

. . .

. . .

. . .

. . .

. . .

.–8

,505

–4,4

69–6

7911

51,

093

5,84

57,

759

–1,2

121,

389

–526

–1,2

6318

,319

Secu

ritie

s at

ove

r on

e ye

ar

. . .

. . .

. . .

. . .

. . .

. .11

,523

5,47

21,

768

–5,7

76–3

,663

–3,3

86–1

,017

2,63

2–6

521,

494

–6,1

0383

,714

Gen

eral

gov

ernm

ent

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

10,1

4216

,085

9,43

46,

437

1,91

21,

371

2,42

04,

747

4,23

83,

406

4,79

226

4,32

7

Secu

ritie

s at

up

to o

ne y

ear

. . .

. . .

. . .

. . .

. . .

.10

,693

–8,6

835,

647

1,14

1–5

,597

–6,1

94–4

,620

247

–294

3,31

54,

383

35,1

93

Secu

ritie

s at

ove

r on

e ye

ar

. . .

. . .

. . .

. . .

. . .

. .–5

5124

,768

3,78

65,

296

7,50

97,

565

7,04

04,

500

4,53

291

409

229,

134

Shar

es .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

6,32

36,

128

9,72

99,

757

39,0

3524

,945

28,9

7926

,707

11,0

308,

426

–237

607,

147

List

ed s

hare

s .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1,01

725

42,

959

2,66

212

,503

9,36

77,

939

5,71

11,

048

930

605

114,

950

Unl

iste

d sh

ares

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

5,30

65,

874

6,77

07,

095

26,5

3115

,579

21,0

4020

,996

9,98

27,

496

–841

492,

197

p.m

.Rec

ours

e by

fin

anci

al a

nd n

on-f

inan

cial

co

rpor

atio

ns t

o th

e se

curit

ies

mar

ket

. . .

. . .

. . .

9,34

17,

131

10,8

184,

096

36,4

6527

,404

35,7

2128

,127

11,7

679,

394

–7,6

0370

9,18

0

154

TAB

LEX

XII

MA

IN I

NTE

RES

T R

ATE

S

(End

of

quar

ter,

ann

ual

perc

enta

ges)

Sour

ces:

EC

B, N

BB.

(1)

The

wei

ghte

d av

erag

e ov

erni

ght

inte

rest

rat

e fo

r th

e eu

ro o

n th

e in

terb

ank

mar

ket

of t

he e

uro

area

(Eo

nia)

.(2

)Th

e av

erag

e in

tere

st r

ate

offe

red

on t

he i

nter

bank

mar

ket

of t

he e

uro

area

for

thr

ee-m

onth

loa

ns i

n eu

ro (

Eurib

or).

(3)

Rate

s ob

tain

ed b

y m

eans

of

a su

rvey

con

duct

ed a

mon

g th

e m

ain

cred

it in

stitu

tions

and

wei

ghte

d by

the

mar

ket

shar

e of

eac

h of

the

se i

nstit

utio

ns.

(4)

The

basi

c in

tere

st r

ate

plus

the

fid

elity

bon

us.

Mon

ey m

arke

t ra

tes

Rate

sof

the

ten

-yea

r re

fere

nce

linea

r bo

nd

Cre

dito

r ra

tes(

3)D

ebto

r ra

tes(

3)

Inte

rban

k m

arke

tTh

ree

mon

th

Trea

sury

cert

ifica

tes

Regu

late

d sa

ving

de

posi

ts(4

)Th

ree-

mon

thtim

e de

posi

tsFi

ve-y

ear

note

sO

verd

raft

sSi

x-m

onth

fixed

-ter

mad

vanc

es

Five

-yea

rin

vest

men

tcr

edits

Mor

tgag

elo

ans

Ove

rnig

ht(1

)Th

ree

mon

th(2

)

1999

I

. . .

. . .

. . .

. . .

. . .

. . .

.2.

992.

972.

844.

252.

602.

483.

367.

023.

755.

104.

71

II . .

. . .

. . .

. . .

. . .

. . .

. . .

2.76

2.67

2.54

4.79

2.61

2.18

3.57

6.52

3.63

5.28

4.95

III .

. . .

. . .

. . .

. . .

. . .

. . .

.2.

633.

092.

575.

402.

582.

394.

366.

523.

936.

215.

58

IV

. . .

. . .

. . .

. . .

. . .

. . .

.3.

753.

343.

205.

582.

582.

714.

706.

954.

326.

516.

09

2000

I

. . .

. . .

. . .

. . .

. . .

. . .

.3.

753.

833.

725.

522.

593.

015.

007.

274.

816.

726.

43

II . .

. . .

. . .

. . .

. . .

. . .

. . .

4.75

4.55

4.41

5.56

2.61

3.63

5.10

8.01

5.36

6.97

6.60

III .

. . .

. . .

. . .

. . .

. . .

. . .

.4.

915.

004.

725.

612.

594.

005.

218.

515.

847.

066.

64

IV

. . .

. . .

. . .

. . .

. . .

. . .

.5.

164.

864.

705.

282.

643.

994.

588.

765.

606.

566.

79

2001

I

. . .

. . .

. . .

. . .

. . .

. . .

.4.

854.

564.

475.

092.

603.

764.

238.

745.

186.

166.

68

II . .

. . .

. . .

. . .

. . .

. . .

. . .

4.72

4.44

4.35

5.37

2.66

3.63

4.31

8.75

5.20

6.22

6.69

III .

. . .

. . .

. . .

. . .

. . .

. . .

.3.

833.

663.

525.

052.

612.

923.

988.

164.

486.

106.

39

IV

. . .

. . .

. . .

. . .

. . .

. . .

.3.

913.

293.

175.

132.

642.

614.

007.

784.

136.

365.

93

2002

I

. . .

. . .

. . .

. . .

. . .

. . .

.3.

393.

453.

335.

412.

632.

704.

507.

784.

507.

146.

03

II . .

. . .

. . .

. . .

. . .

. . .

. . .

3.49

3.44

3.36

5.16

2.64

2.75

4.28

7.78

4.40

7.12

6.25

III .

. . .

. . .

. . .

. . .

. . .

. . .

.3.

423.

303.

144.

512.

642.

593.

587.

784.

056.

305.

79

IV

. . .

. . .

. . .

. . .

. . .

. . .

.3.

442.

872.

734.

322.

662.

183.

547.

543.

746.

005.

41

2003

I

. . .

. . .

. . .

. . .

. . .

. . .

.2.

662.

522.

424.

182.

591.

872.

877.

103.

246.

015.

08

II . .

. . .

. . .

. . .

. . .

. . .

. . .

2.38

2.15

2.02

3.94

2.35

1.49

2.33

6.81

2.90

5.58

4.74

III .

. . .

. . .

. . .

. . .

. . .

. . .

.2.

102.

132.

024.

092.

131.

483.

056.

802.

906.

035.

09

IV

. . .

. . .

. . .

. . .

. . .

. . .

.2.

322.

122.

004.

342.

131.

463.

246.

813.

026.

345.

12

155

STATISTICAL ANNEX

TAB

LEX

XIII

MA

IN I

NTE

RES

T R

ATE

S O

F TH

E EU

RO

SYST

EM

(Ann

ual

perc

enta

ges)

Sour

ce: E

CB.

(1)

Unt

il th

e op

erat

ion

to b

e se

ttle

d on

21

June

200

0, f

ixed

rat

e of

the

wee

kly

allo

tmen

ts o

f tw

o-w

eek

cred

its.

From

the

tra

nsac

tion

to b

e se

ttle

d on

28

June

200

0, m

inim

um b

id r

ate

at t

he t

ende

rs f

or t

he w

eekl

y al

lotm

ents

of

two-

wee

k cr

edits

.(2

)Ex

cept

for

the

per

iod

from

4

to 2

1 Ja

nuar

y 19

99,

durin

g w

hich

the

rat

e fo

r th

e m

argi

nal

lend

ing

faci

lity

was

3.2

5 p.

c. a

nd t

hat

for

the

depo

sit

faci

lity

2.75

p.c

. Th

e pu

rpos

e of

thi

s na

rrow

er “

corr

idor

” (5

0 ba

sis

poin

ts)

was

to

faci

litat

e th

e tr

ansi

tion

of m

arke

t op

erat

ors

to t

he n

ew s

yste

m.

Dat

es o

f an

noun

cem

ent

of c

hang

esRa

te o

n th

e m

ain

refin

anci

ng o

pera

tions

(1)

Rate

on

the

mar

gina

l le

ndin

g fa

cilit

yRa

te o

n th

e de

posi

t fa

cilit

y

1998

22D

ecem

ber

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3.

004.

50(2

)2.

00(2

)

1999

8A

pril

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

2.50

3.50

1.50

4N

ovem

ber

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3.

004.

002.

00

2000

3Fe

brua

ry

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .3.

254.

252.

25

16M

arch

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

3.50

4.50

2.50

27A

pril

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

3.75

4.75

2.75

8Ju

ne

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

4.25

5.25

3.25

31A

ugus

t .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .4.

505.

503.

50

5O

ctob

er .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

4.75

5.75

3.75

2001

10M

ay .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

4.50

5.50

3.50

30A

ugus

t .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .4.

255.

253.

25

17Se

ptem

ber

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3.

754.

752.

75

8N

ovem

ber

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.3.

254.

252.

25

2002

5D

ecem

ber

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.2.

753.

751.

75

2003

6M

arch

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

2.50

3.50

1.50

5Ju

ne

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

2.00

3.00

1.00

156

TAB

LEX

XIV

EXC

HA

NG

E R

ATE

S(1

)

(Nat

iona

l m

onet

ary

units

per

ecu

or

euro

, an

nual

ave

rage

s)

Sour

ce: E

CB.

(1)

Unt

il 19

98,

exch

ange

rat

e fo

r th

e ec

u, t

here

afte

r ex

chan

ge r

ate

for

the

euro

.(2

)A

s th

e EC

B ha

s on

ly p

rovi

ded

offic

ial

refe

renc

e ra

tes

sinc

e 20

01,

the

rate

s sh

own

in t

he t

able

for

the

per

iod

prio

r to

tha

t da

te a

re i

ndic

ativ

e.(3

)D

ata

com

pile

d on

the

bas

is o

f th

e w

eigh

ted

aver

ages

of

the

bila

tera

l ex

chan

ge r

ates

for

the

eur

o. T

he w

eigh

tings

are

cal

cula

ted

from

the

tra

de i

n m

anuf

actu

red

prod

ucts

bet

wee

n 19

95 a

nd 1

997

with

the

tra

ding

par

tner

s w

hose

cur

renc

ies

appe

ar i

n th

e ta

ble

(incl

udin

g G

reec

e un

til 2

000)

, an

d ta

ke a

ccou

nt o

f th

e ef

fect

s of

thi

rd m

arke

ts.

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

US

dolla

r . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1.19

01.

308

1.27

01.

134

1.12

11.

066

0.92

40.

896

0.94

61.

131

Poun

d st

erlin

g .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .0.

776

0.82

90.

814

0.69

20.

676

0.65

90.

610

0.62

20.

629

0.69

2

Japa

nese

yen

. .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

121.

312

3.0

138.

113

7.1

146.

412

1.3

99.5

108.

711

8.1

131.

0

Swis

s fr

anc

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1.62

11.

546

1.56

81.

644

1.62

21.

600

1.55

81.

511

1.46

71.

521

Swed

ish

kron

a .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .9.

163

9.33

28.

515

8.65

18.

916

8.80

78.

445

9.25

59.

161

9.12

4

Kor

ean

won

(2)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

957.

099

9.7

1,00

7.9

1,06

9.8

1,56

8.9

1,26

7.3

1,04

3.5

1,15

4.8

1,17

5.5

1,34

6.9

Hon

g K

ong

dolla

r(2)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .9.

168

10.0

119.

684

8.75

08.

695

8.26

97.

198

6.98

67.

375

8.80

8

Dan

ish

kron

e .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

7.54

37.

328

7.35

97.

484

7.49

97.

435

7.45

47.

452

7.43

17.

431

Sing

apor

e do

llar(

2)

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

1.81

01.

833

1.76

51.

678

1.87

61.

806

1.59

21.

604

1.69

11.

970

Can

adia

n do

llar

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .

1.62

51.

795

1.73

11.

569

1.66

51.

584

1.37

11.

386

1.48

41.

582

Nor

weg

ian

dolla

r .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

8.37

48.

286

8.19

78.

019

8.46

68.

310

8.11

38.

048

7.50

98.

003

Aus

tral

ian

dolla

r . .

. . .

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157

LIST OF BOXES, TABLES AND CHARTS

BOXES

Chapter 1 : International environment

Box 1 : conomic foundations of the European rules on the fi scal policy of the Member States 21

Box 2 : Belgium’s trade with the accession countries 26

Chapter 3 : Output and expenditure in Belgium

Box 3 : The effect of a euro appreciation on the Belgian economy 38

Chapter 4 : Labour market and labour costs

Box 4 : Defi nition of the main labour market indicators 51

Chapter 5 : Prices

Box 5 : Cyclical infl ation in Belgium and the euro area 68

Chapter 6 : Public fi nances

Box 6 : Cyclically adjusted budget balances : calculation method used by the ESCB 83Box 7 : The Silver Fund 86

TABLES


1 Growth of the world’s main economies 32 Current account balances of the main regions of the world 5

List of boxes, tables and charts

158

3 Economic developments in the United States 74 Economic developments in Japan 105 Growth in China and in the emerging Asian economies 126 Economic developments in the euro area 127 Growth in the euro area countries 158 Price indicators for the euro area 169 Infl ation in the countries of the euro area 1710 Balance of payments of the euro area 1811 Financing requirement (–) or capacity of general government in the euro area 1912 Cyclically adjusted primary balance of general government in the euro area 2013 Economic situation of the accession countries in 2003 23

Chapter 2 : The monetary policy of the Eurosystem

14 Consolidated and simplifi ed fi nancial statement of the Eurosystem 33


15 GDP and main categories of expenditure, at 2000 prices 4116 Gross disposable income of individuals at current prices 4517 Determinants of the gross operating surplus of companies 46


18 Domestic employment 4719 Supply of and demand for labour 4920 Labour market and GDP growth 5321 Main calculated conclusions of the Employment Conference 5422 Labour costs in the private sector 5623 Unit labour costs in the private sector 58

Chapter 5 : Prices

24 Harmonised index of consumer prices in Belgium 62


25 Targets for the fi nancing requirement (–) or capacity of Belgian general government 7126 Revenue of general government 7227 Main fi scal and parafi scal measures 7328 Main elements of the tax burden on private consumption 7629 Primary expenditure of general government 7730 Primary expenditure of social security, adjusted for the infl uence of the cycle on

unemployment spending 7831 Financing requirement (–) or capacity by general government sub-sector 8132 Cyclically adjusted and structural budget balances 8233 Consolidated gross debt of general government 8534 Determinants of the rise in public health care expenditure 88

159


Chapter 7 : Overall balance of the economy and current transactions on the balance of payments

35 Financing requirement (–) or capacity by main sectors 9336 Net lending to the rest of the world according to the balance of payments 9437 Transactions in goods with the rest of the world 95

Chapter 8 : Financial accounts and fi nancial markets

38 Financial assets and liabilities by sector 9739 Structure of the fi nancial assets and liabilities of resident non-fi nancial sectors 9840 Financial assets and liabilities of general government 103

Chapter 9 : Financial stability

41 Financial soundness indicators of the banking sector in the United States and in the euro area 113

42 Profi t and loss account of Belgian credit institutions 11443 Indicators of profi tability and solvency of credit institutions governed by Belgian law 11544 Non-interest income of Belgian credit institutions 11645 Portfolio of Belgian credit institutions 11746 Determinants of interest income of Belgian credit institutions 11847 Composition of the balance sheet of Belgian credit institutions 11848 Profi tability and solvency of the four large bancassurance groups active

on the Belgian market 12349 New organisational structure of the EU committees responsible for fi nancial services 126

CHARTS


1 Prices of basic products in US dollars 42 Bilateral exchange rates against the US dollar 63 Cyclical profi le of the United States 64 Financing balance of general government and current account balance of the United States 85 Macroeconomic policies in the United States 86 Cyclical profi le of GDP and the main categories of expenditure in Japan 97 Financing requirement of general government and gross public debt in Japan 108 Cyclical profi le of GDP in the euro area 139 Consumer confi dence in the euro area 1310 Business confi dence and capacity utilisation rates in the euro area 1411 Financing of non-fi nancial corporations in the euro area 1412 Main categories of expenditure in the euro area 1513 Unemployment and growth of employment in the euro area 1614 Trade in goods between the euro area and countries outside the euro area 1815 Consolidated gross public debt in the euro area 2016 Nominal exchange rates of accession country currencies vis-à-vis the euro 25

160

Chapter 2 : The monetary policy of the Eurosystem

17 Infl ation and long-term infl ation expectations 2818 Prices and costs in the euro area 2819 Financial indicators of the euro area 2920 M3 and consumer prices in the euro area 3021 M3 and its components 3022 M3 and its counterparts in the balance sheet of monetary fi nancial institutions 3123 Eurosystem and money market interest rates 3124 Indicators relating to monetary conditions 3225 Notes issued by the Eurosystem, outstanding amounts in real terms 3426 Operational conduct of the Eurosystem’s monetary policy in 2003 35


27 GDP in Belgium and in the euro area 3728 GDP and business survey indicator 4029 Value added in the main branches of activity and business survey indicators 4030 Main categories of expenditure 4231 Export markets, exports of goods and services at constant prices, and opinion on foreign

orders in manufacturing industry 4232 Exports and imports of goods by Belgium 4333 Private consumption, disposable income and savings ratio 4434 Capital stock of enterprises 46


35 Employment and activity 4836 Wholly unemployed job-seekers receiving benefi ts, by duration of unemployment 4937 Early retirement and older unemployed persons 5038 Unemployment and vacancies in 2003 5039 Internal disparity and unemployment rates in Belgium and the other EU countries 5240 Harmonised employment rates in Belgium and the EU 5241 Collectively agreed wages in 2003 5542 Employers’ contributions in the private sector 5643 Fiscal and parafi scal burden on labour 5744 Labour costs, defl ator and labour productivity in the private sector 5845 Labour costs in the private sector in Belgium and the euro area 59

Chapter 5 : Prices

46 Infl ation : analytical breakdown 6347 Crude oil prices and consumer prices of energy products 6448 Underlying trend in infl ation 6449 Transmission of exchange rate variations to prices of non-energy products 6550 Infl ation in Belgium and the euro area 6751 Factors explaining the sensitivity of infl ation to oil price fl uctuations 6952 Openness to imports of goods from outside the euro area in 2002 69

161



53 Fiscal and parafi scal burden on labour income 7454 Nominal tax rate on corporate profi ts 7555 Implicit tax burden on private consumption 7556 Interest rates on the public debt 7957 Personal income tax and VAT revenues transferred to the communities and regions

under the Special Finance Act 8158 Public debt in Belgium and in the euro area 8759 Health care expenditure 8760 Main categories of health care expenditure 8861 Health care expenditure in 2000, by age 8962 Ratio between the growth of public health care expenditure and the growth of GDP 89

Chapter 7 : Overall balance of the economy and current transactions on the balance of payments

63 Gross savings, gross capital formation and fi nancing balance of the domestic sectors 9264 Share of services in Belgian trade 92

Chapter 8 : Financial accounts and fi nancial markets

65 Indebtedness of non-fi nancial corporations 9866 New fi nancial liabilities of non-fi nancial corporations 9967 Bank loans to non-fi nancial corporations, GDP and interest rates 9968 Loans granted by Belgian credit institutions to non-fi nancial corporations, by size of

enterprises according to the Central Offi ce for Credits 10069 Interest rate differentials on loans to non-fi nancial corporations vis-à-vis public debt

instruments 10070 Results of the Eurosystem’s bank lending survey 10171 Stock market prices in Belgium and in the euro area 10172 Net issues of fi xed-income securities by Belgian non-fi nancial corporations 10273 Public debt in Belgium and in the euro area 10474 Financing conditions of general government 10575 Formation of fi nancial assets by individuals 10676 Savings deposits of individuals and interest rate differentials 10677 Fixed-income securities held by individuals and long-term yield rates 10778 External fi nancial assets of individuals 10779 New mortgage loans to individuals and interest rates 10880 Housing price indicators in Belgium 10881 New consumer credit, consumption of durable goods and interest rate 109

Chapter 9 : Financial stability

82 Stock market developments 11183 Global default rate on private sector bonds 11284 Bond market risk premiums 11285 Gains on the investment portfolio of Belgian banks 11786 Yield curve 11987 Results of hedging transactions by Belgian banks 11988 Value adjustments by Belgian banks 120

162

89 Determinants of the results of insurance companies 12190 Number of insurance companies established in Belgium, by specialisation 12191 Composition of the fi nancial assets of insurance companies established in Belgium

and the euro area 12292 Explicit and implicit solvency margin of insurance companies 123

STATISTICAL ANNEX

Tables relating to economic activity and prices

1 Summary of macroeconomic developments in some euro area countries 1332 GDP and main categories of expenditure at 2000 prices 1343 GNI and main categories of expenditure at 2000 prices 1354 Defl ators of GNI and of the main categories of expenditure 1365 GNI and the main categories of expenditure at current prices 1376 Value added of the various branches of activity at 2000 prices 1387 Demand for and supply of labour 1398 Unemployment 1409 Harmonised index of consumer prices for Belgium 14110 Incomes of the various sectors at current prices 14211 Summary of the transactions of the main sectors of the economy at current prices 143

Tables relating to general government transactions

12 Revenue, expenditure and fi nancing requirement (–) or capacity of general government 14413 Financing requirement (–) or capacity of general government, by subsectors 14514 Consolidated gross debt of general government 146

Tables relating to transactions with foreign countries

15 Current and capital transactions of Belgium on a transaction basis 147

Tables relating to monetary and fi nancial transactions

16 Formation of fi nancial assets and new fi nancial liabilities of individuals 14817 Formation of fi nancial assets and new fi nancial liabilities of non-fi nancial corporations 14918 Formation of fi nancial assets and new fi nancial liabilities of general government 15019 Formation of fi nancial assets and new fi nancial liabilities of monetary fi nancial institutions 15120 Formation of assets and new liabilities of fi nancial intermediaries other than monetary

institutions 15221 Net issues of securities by fi nancial and non-fi nancial corporations and general

government 15322 Main interest rates 15423 Main interest rates of the Eurosystem 15524 Exchange rates 156

Publisher

J. HILGERSDirector

National Bank of Belgium

boulevard de Berlaimont 14 – BE -1000 Brussels

Contact for the Preface

Ph. QUINTINHead of Communication

Tel. +32 2 221 22 41 – Fax +32 2 221 30 91

[email protected]

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Published in March 2004

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