19 mai 2020

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2

3) What can be the long-term damage?

1) How bad is the initial shock?

2) A stylised scenario (NBB-BFP)

“We plegen economische harakiri.”

“Even if this containment regime only lasts for close to

a month and the economic situation does not get worse,

the direct shock to output in annual terms is probably

already larger than the Great Recession.”

(e-mail to Governor Wunsch, 18 March 2020)

3

0

200

400

600

800

1000

1200

1400

200801

200807

200901

200907

2010

01

2010

07

2011

01

2011

07

2012

01

2012

07

2013

01

2013

07

2014

01

2014

07

2015

01

2015

07

2016

01

2016

07

2017

01

2017

07

2018

01

2018

07

2019

01

2019

07

202001

0

200

400

600

800

1000

1200

1400

202003

202004

COVID-19-related requests for

temporary unemployment(thousands of persons, daily data)

The Great Recession of 2008/09 is now the small recession …

4Source: NEO, classified data.1 Including staff suspensions.

Max = 226k March 2009

Actual use of temporary unemployment(thousands of persons, monthly data, not verified from October 2019 on)

March:

1 030

April:

1 179

-33 -33-36

-33 -34-32

-29-31

-50

-40

-30

-20

-10

0

Week 1

(23 March)

Week 2

(30 March)

Week 3

(6 April)

Week 4

(14 April)

Week 5

(20 April)

Week 6

(27 April)

Week 7

(5 May)

Week 8

(12 May)

5

Lockdown = about 1/3 of private sector was gone …

Source: weekly ERMG surveys (BECI, Boerenbond, NSZ-SNI, UNIZO. UWE, VOKA coordinated by NBB, VBO-FEB).

¹ Weighted average based on industry value added and sales. This approach excludes the firms that were

identified as belonging to a miscellaneous ‘other’ industry. The value added weight of the real estate activities

is corrected (so as not to reflect imputed rents).

Covid-19 impact¹ on turnover of Belgian companies

and self-employed (in %)

6

The Corona damage strongly differs by industry

Source: weekly ERMG survey. 1 Weights based on sales.

Weighted1 average impact of Covid-19 on turnover(in %)

-100

-80

-60

-40

-20

0

Accommodation

and food

services

Events Retail sales

(non-food)

Manufacture of

furniture

Manufacture of

textiles, wearing

apparel and

shoes

Road transport

(persons)

Agriculture and

fishing

Manufacture of

pharmaceutical

and chemical

products

Financial and

insurance

activities

Retail sales

(food)

Average Week 1 - 6

Detailed industry information can be found on the NBB web-site (detailed tables)

7Source: ERMG surveys (weeks 2-6).

Reported decline in turnover due to the coronavirus, by staff size(in % of responding firms)

Smallest firms / self-employed suffer most

0

10

20

30

40

50

60

70

80

90

100

Self-employed 1 - 10 10 - 20 20 - 50 50 - 250 >250

100% 75 - 99% 50 - 75% 20 - 50% 0 - 20% No impact Positive impact

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Place a footer: Insert > Header & Footer 8

3) What can be the long-term damage?

1) How bad is the initial shock?

2) A stylised scenario (NBB-BFP)

◆ Unprecedented shock: acute, instant and complex (supply and demand).

◆ Quick policy response to mitigate liquidity stress and income loss.

◆ Urgent: contain permanent damage to the economy additional measures?

If so, what type (supply, demand, both)?

◆ Need to assess the extent of the damage on impact and the benefits of avoiding

permanent job and capacity destruction.

◆ Elaborate most-plausible scenario, not a forecast results as good as

underlying assumptions.

◆ Joint work by NBB and FPB teams published April 8.

9

Context and approach

◆ How bad is this? Extremely bad.

◆ What are the challenges? Risks tilted to the downside, bolder and more

comprehensive policy action required despite fragile public finances.

◆ How does the recovery look like ? V, U, W or ?

10

Key questions and messages

◆ Hard lockdown for 7 weeks (until May 4).

◆ Loss during lockdown: 1/3 of private sector value added (see survey).

◆ Steep recovery post-lockdown, then gradual convergence to pre-crisis baseline

(minus 2 percent) by mid-2021.

◇ pent-up demand unwinds post-lockdown, but

◇ gradual lifting of lockdown,

◇ gradual repair of value chains and production lines,

◇ negative spillbacks from international trade,

◇ some capacity and employment losses.

◆ No sharp price response (offsetting shocks).

◆ Automatic stabilizers (income support,…) taken into account, but no other measure.

11

Assumptions

12

Real GDP growth(annual ratel)

Real GDP(Indices 2018 Q1 = 100)

Recession in 2020 (-8 %) followed by steep recovery in 2021

80

85

90

95

100

105

1102018

T1

2018

T2

2018

T3

2018

T4

2019

T1

2019

T2

2019

T3

2019

T4

2020 T

1

2020 T

2

2020 T

3

2020 T

4

2021

T1

2021

T2

2021

T3

2021

T4

Trajectoire initiale Scénario

-10

-8

-6

-4

-2

0

2

4

6

8

10

2019 2020 2021

13

The recession curve …

Cumulative GDP loss: 30 billion by June; 45 by end-2020 hit on

state budget

-70

-60

-50

-40

-30

-20

-10

0

2020 T1 2020 T2 2020 T3 2020 T4 2021 T1 2021 T2 2021 T3 2021 T4

-6

-4

-2

0

2

4

6

8

2020 2021

Households' real disposable income

Private consumption

◆ Households’ real disposable income falls

modestly (-1,5 %) compared to GDP

Shock is smoothed.

◆ Constrained consumption and higher

aggregate savings pent-up demand

likely (excess savings of about 11 billion

in 2020).

14

Households disposable income and

private consumption (real)(y-o-y percentage change)

Impact on households

-40

-30

-20

-10

0

10

20

30

40

50

60

2020 2021

◆ Extreme but transitory shock.

◆ Key assumption: no mass bankruptcies/job

losses.

◆ Aggregate result. Reality is one of diverse

firms in terms of:

◇ Incidence of the shock (HORECA vs.

grocery stores),

◇ Structural liquidity buffers.

◆ Need additional support measures:

temporary, targeted, and commensurate

to the damage.

15

Gross operating surplus(y-o-y percentage change)

Impact on businesses

◆ Recall: scenario no “confidence interval.”

◆ Extreme uncertainty ongoing adjustments to the most plausible scenario (more gradual exit,

greater job losses, weaker domestic and external demand).

◆ More severe scenarios assuming realization of bad risks:

◇ Epidemic not under control: slower reopening, return to hard lockdown;

◇ Larger and more persistent production losses (lasting disruptions in value chains, tight sanitary

rules constraining operations).

◇ Bankruptcies and job losses as liquidity runs out and diminished prospects for some sectors

force restructuring (structural lack of demand post-lockdown).

◇ More likely: deflation if fear leads to precautionary saving. Less likely: temporary inflation burst if

demand recovers “too fast” compared to supply.

◇ Long-lasting damage to international trade and global value chains if pandemic keep hitting

countries differently and at different time.

16

Risks as assessed on April 8: all on the downside

17Source: Consensus Economics, NBB-FPB, IMF, EC1 All forecasts above/below the line imply full/less than full recovery to 2019 GDP levels by end 2021

Belgium: Real GDP growth forecasts for 2020 vs 2021 1

(%)

V or no V?

KBC

NBB-FPB

IMF WEO

Morgan Stanley

EC Spring

Bank America

Merrill

Capital Economics

Citigroup

IHS Markit

Oxford Economics

INGKBC

-2

0

2

4

6

8

10

12

14

-14 -12 -10 -8 -6 -4 -2 0 2

Real G

DP

gro

wth

fo

reca

st 2

021

Real GDP growth forecast 2020

March 16 - April 3 April 6-24 April 27 - May 15

V

No V

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18

3) What can be the long-term damage?

1) How bad is the initial shock?

2) A stylised scenario (NBB-BFP)

19Source: ERMG survey, week 8.

Impediments for a recovery of sales to pre-crisis levels after the lockdown(in % of responding firms, multiple answers possible)

The economy reopens gradually but demand is yet to recover …

0

20

40

60

80

Lack of demand Social distancing Supply chain

problems

Liquidity problems Staff shortage Other None

20Source: ERMG survey, week 6.

… and investment is massively postponed

30

33

14

24

Yes, to later in 2020 or 2021

Yes, new date unknown

No

Did not have any investment plan

Do you envisage to postpone your investments

as a result of Covid-19? YES for 63%(in %, weighted by sectoral share in Belgian value added)

Plans to postpone investment per firm size(distribution, in % of responding firms of that size, size defined

as number of employees)

0

20

40

60

80

100

No

Did not have any investment plan

Yes, new date unknown

Yes, to later in 2020 or 2021

Bankruptcy risks are elevated in the worst-hit industries

21

Share of respondents that considered bankruptcy to be likely or highly likely(in %)

0

5

10

15

20

25

30

35

40

45

Arts,

entertainment

and recreation

Accommodation

and food services

Real estate

activities

Transportation

and logistics

Information and

communication

Support services Manufacturing Wholesale and

retail trade

Construction Agriculture Financial and

insurance

activities

Belgium¹

Source: ERMG survey, week 7 (5 May).

¹ Average, weighted by sectoral share in Belgian value added.

Bankruptcy risks are elevated in the worst-hit industries

22

Share of respondents that considered bankruptcy to be likely or highly likely(in %)

0

5

10

15

20

25

30

35

40

45

Arts,

entertainment

and recreation

Accommodation

and food services

Real estate

activities

Transportation

and logistics

Information and

communication

Support services Manufacturing Wholesale and

retail trade

Construction Agriculture Financial and

insurance

activities

Belgium¹

Source: ERMG survey, week 7 (5 May).

¹ Average, weighted by sectoral share in Belgian value added.

0

5

10

15

20

25

30

35

40

45

50

Arts,

entertainment

and recreation

Transportation

and logistics

Support services Accommodation

and food services

Construction Real estate

activities

Information and

communication

Wholesale and

retail trade

Manufacturing Financial and

insurance

activities

Agriculture

23

Source: ERMG survey, week 7 (5 May). 1 This corresponds to one fifth of 900 000 temporary unemployed in March (the most recent estimation from ONEM/RVA).2 Average, weighted by the estimated number of temporary unemployed in the industries.3 No estimate available as there are too few firms with temporary unemployed workers in the sample.

Temporary unemployed that would be dismissed, by industry(in % of the temporarily unemployed staff of the responding firms)

One out of five temporary unemployed may lose his/her job

(180 000 people1)

NA3

Belgium2

24Source: ERMG survey, week 7 (5 May).

Firms with a high bankruptcy risk have more than half of their staff in

temporary unemployment, of which about half will be fired

Temporary unemployed, by bankruptcy risk(in % of the staff of the responding firms, excluding the self-employed)

0

10

20

30

40

50

60

Highly likely Likely Possibly Unlikely Highly

unlikely

Temporary unemployed that will be dismissed,

by bankruptcy risk(in % of the temporarily unemployed staff of the responding firms)

0

10

20

30

40

50

60

Highly likely Likely Possibly Unlikely Highly

unlikely

25