Costs, advantages and drawbacks of the various means of payment

The total macroeconomic costs of the payment instruments used in the points of sale can be estimated to be 2.034 million euros, or 0.74 p.c. of Belgian GDP in 2003. The payment costs arising from cash were 0.58 p.c. of GDP, compared to 0.11 p.c. for debit cards, 0.04 p.c. for credit cards and 0.02 p.c. for the electronic purse Proton. About 50.5 p.c. of the payment costs originate in points of sale, whilst 47.1 p.c. come from the financial sector and 2.3 p.c. from currency-issuing institutions. If the costs of payment instruments are confronted to the transactions carried out, it can be seen that the costs per transaction are similar for three instruments. Costs are lowest for cash, at about 53 eurocents, but this instrument is closely followed by Proton (54 eurocents) and debit cards (55 eurocents). For credit cards, the costs are noticeably higher (2.62 euros). The costs per euro of turnover show that debit cards are the least expensive (1 eurocent), whilst cash, credit cards (at 3 eurocents in both cases), and especially Proton (10 eurocents), generate higher costs. These differences in costs, though, do not give any indication of the savings which could be made by replacing payment instruments with high variable costs with other instruments offering lower ones. The composition of the costs differs significantly between the different payment methods studied. Electronic payment costs are essentially fixed in nature : a significant part of these costs is linked to the infrastructure required for carrying out electronic transactions. The percentage is highest for Proton, with total fixed costs of 83 p.c. Next come credit cards (75 p.c.) and debit cards (61 p.c.). The cost breakdown for cash is far more balanced : 49 p.c. for fixed costs and 51 p.c. for variable costs (25 p.c. depending on the number of transactions and 26 p.c. on the amounts transacted). Variable costs per additional transaction are lowest for electronic purses, followed by cash, then debit cards and credit cards. Variable costs by additional euro of turnover are the highest for cash, since variable costs per transaction increase markedly according to the amount to be paid. In Belgium debit cards do not entail variable costs per additional euro of turnover and therefore give a level development for variable costs in relation to turnover. Essentially, variable costs for cash and debit cards are identical for a transaction of 10.24 euros ; it is better to pay smaller amounts in cash and higher amounts using a debit card. Moreover, it should be pointed out that the costs for using Proton are always lower than those for using cash but as soon as the sum to be paid reaches 53.74 euros, Proton becomes more expensive than using a debit card. It is possible to quantify a possible efficiency improvement in the use of payment instruments through a simulation. In order to do this, an analysis was carried out of the hypothetical replacement of 750 million transactions settled in cash by 250 million transactions (of an average 5 euros) paid by using Proton, and 500 million (of an average of 20 euros) using a debit card. The finding was that the saving would be about 58 million euros or 0.02 p.c. of GDP. Such a saving is rather low, even if a comparison is made at overall cost level (0.74 p.c. of GDP). Only a shift to a cashless society could generate substantial savings. This is, however, a purely theoretical scenario. As its market share shows, cash continues to be the public’s firm favourite : cash transactions make up 81.3 p.c. of point of sale operations. Cash does have intrinsic advantages ; it continues to be the only payment instrument which is universally accepted, basically because of its legal tender status, but also because its use does not require a terminal. Moreover, it can be used for operations between private individuals. Cash guarantees confidentiality in transactions and offers complete security in terms of protecting the private sphere of life. In addition, its use is unlikely to lead to building up excessive debts and lastly, it can also be a factor in social integration. Consumers should be able to continue to choose the payment methods they wish to use freely. Diversifying them contributes to greater flexibility for settling transactions and is therefore socially justified. In the future, efforts to make payment instruments more useful and more efficient will obviously have to be made. The spontaneous development of payments is already on the right lines, given the constant advances made in the area of electronic payments.banknote, cash, credit card, payment card

Economic projections for Belgium – Autumn 2008

Since the publication of the previous forecasts in June 2008, the economic outlook has deteriorated very rapidly, both at global level and for Belgium. The financial tensions which emerged in mid 2007 turned into a serious crisis, and the contagion effects on the real economy proliferated, halting the growth of activity in the advanced economies and causing an abrupt fall in commodity prices. The slowdown in activity which began in mid 2007 as a result of weakening external demand was slightly less marked in Belgium than in the euro area. However, the plummeting confidence indicators show that the deterioration in the international economic situation and the worsening financial crisis will have a more widespread impact on the economy. As in the euro area, activity is predicted to decline in Belgium in late 2008 and early 2009, with a very modest recovery in the ensuing quarters. Thus, real GDP growth is projected to fall from 2.6 p.c. in 2007 to 1.4 p.c. in 2008 and –0.2 p.c. in 2009. Most expenditure categories are affected directly or indirectly by the global financial crisis, and will therefore reflect the sharp growth slowdown in 2009. Exports of goods and services are projected to fall, following the marked deterioration in external demand. After its expansion had been curbed in 2008 by the stagnation of real disposable income caused by rising inflation, private consumption is not expected to grow in 2009, the main factors being the stock market slide and the subsequent increase in the savings ratio, but more generally the deteriorating economic conditions and labour market prospects. In these gloomy circumstances in terms of demand, and in the face of the increased cost of raising finance via bank credit or via share issues, business investment is forecast to decline in 2009, after having been vigorous for more than four years. Investment in housing is likely to maintain the tendency to slow down which began in 2007. On the labour market, net job creation, which had been a significant factor bolstering the economy in the last three years, is likely to dry up in 2009. As an annual average, growth should remain positive thanks to the still favourable trend during 2008. Following a year-on-year increase of 1.8 p.c. in 2007 and 1.5 p.c. in 2008, the rate of employment expansion in persons is projected to fall to 0.2 p.c. in 2009, although supported by a further increased in service vouchers. This expected rise in the average number of persons employed in 2009 corresponds to a 0.3 p.c. reduction in the volume of labour, as firms prefer to start reducing the number of hours worked. The unemployment rate is projected to rise from 6.6 p.c. in the fourth quarter of 2008 to 7.1 p.c. in the fourth quarter of 2009. As an annual average, it is set to increase from 6.7 p.c. in 2008 to 6.9 p.c. in 2009. After having reach a peak of 5.9 p.c. in July 2008, average inflation is likely to diminish from 4.6 p.c. in 2008 to 1.9 p.c. in 2009 on the back of the deceleration in food price rises and the drop in oil prices. The health index is forecast to rise by 4.3 p.c. in 2008 and 2.3 p.c. in 2009. However, inflation is expected to increase in the case of services, particularly as a result of the indirect effect of the energy and food price shocks on transport and restaurants, the linking of certain service price increases to the general level of inflation, e.g. for rents, and the progressive incorporation of labour cost increases. Reflecting both the dip in labour productivity, following the weakness of economic activity in 2008 and 2009, and the continuing sustained increase in hourly labour costs, unit labour costs in the private sector are forecast to rise by 3.1 p.c. in 2007, 3.8 p.c. in 2008 and 3.2 p.c. in 2009, compared to an average annual increase of 0.7 p.c. from 2002 to 2006. For 2009, the growth of 3.3 p.c. in hourly labour costs, assumed for the purpose of this exercise, corresponds essentially to the expected effect of indexation, the latter taking time to respond to the acceleration in inflation measured by the health index. This assumption is in line with that adopted by the Central Economic Council Secretariat, taking account of the adjustment to the outlook for growth and inflation in recent months. It does not in any way anticipate the outcome of the current negotiations between the social partners. According to the latest information, public finances will end the year 2008 with a deficit of 0.9 p.c. of GDP. In the macroeconomic context described above, that deficit is likely to reach 1.7 p.c. of GDP in 2009. The downward trend in the public debt ratio is expected to be interrupted in 2008. At the end of this year, the public debt is forecast at 87.8 p.c. of GDP, or around 4 percentage points above its level at the end of 2007. This increase is due to loans which the Belgian State contracted to finance injections of capital into its financial institutions and the loans which it granted to them. In 2009, the public debt ratio is likely to begin falling again, although more slowly than in previous years taking account of the relative weakness of nominal GDP growth and the increased borrowing requirement.Belgium, macroeconomic projections, Eurosystem

Economic projections for Belgium – Spring 2011

At the beginning of 2011, the recovery phase seen in the global economy over the past two years reached a degree of maturity. Activity in the various economic regions should gradually progress from being export-led to become more broadly based. At the same time, the improvement in the economic situation, especially in the emerging countries, triggered a rapid rise in commodity prices. However, serious factors of uncertainty still linger. The legacy of the 2008-2009 crisis, the seriously degraded public finances in most advanced economies on both sides of the Atlantic require consolidation measures. Similarly, financial institutions in general will have to continue their restructuring. These factors, which could hold back the economy, are compounded by the risks resulting from the natural disasters in Japan and political and social tensions in the Middle East and North Africa. In the euro area, there are significant internal divergences, for instance the unexpected vigour of the recovery in Germany and, conversely, the decline in activity in the economies facing serious structural problems. The recovery is expected to continue, but less vigorously than at the beginning of 2011. In Belgium, recent developments in economic activity have been better than previously predicted. The Belgian economy, in Germany’s wake, has succeeded in taking advantage of the revival in global demand, while private consumption has rapidly picked up. Business and household investment should gradually recover too. Overall, growth came to 2.1 % in 2010; it is projected to reach 2.6 % in 2011 before subsiding to 2.2 % in 2012, thus outpacing growth in the euro area. The continuing expansion of activity is likely to be supported by consolidation of the labour market. Job creation should be maintained as, in net terms, around 77 000 additional jobs will be generated between the end of 2010 and the end of 2011. The decline in unemployment which had begun in early 2010 is expected to continue steadily, reducing the average unemployment rate from 8.4 % in 2010 to 7.3 % in 2012. In parallel with the clear recovery of activity and demand at global level, external inflationary pressures strengthened considerably in Belgium during 2010 and at the beginning of 2011. Overall, as an annual average, the rise in consumer prices is projected to increase from 2.3 % in 2010 to 3.4 % in 2011, before dropping back to 2.2 % in 2012, as energy price inflation is set to calm down. However, sustained wage growth could increasingly drive up underlying inflation. According to the latest data, public finances ended the year 2010 with a deficit of 4.1 % of GDP. In the macroeconomic context described above, the deficit is projected at 3.5 % of GDP in 2011. However, it is likely to increase again in 2012 to 4.1 % of GDP. The debt ratio is expected to fall from 96.6 % of GDP in 2010 to 95.4 % in 2012.Belgium, macroeconomic projections, Eurosystem

Economic projections for Belgium – autumn 2004

Twice a year, in June and December, the National Bank of Belgium publishes the macroeconomic projections for the Belgian economy for the current and the following year. The current projections are an update of the projections for 2004 and 2005 published last June. These projections make up the national component of the broad macroeconomic projection exercise conducted within the Eurosystem; the ECB publishes the aggregated results of this exercise for the euro area economy. At the current juncture, real GDP growth in the world’s leading economies is projected to remain robust in 2005, after having reached a peak in 2004. Compared to June, the Eurosystem has revised its projections for 2004 slightly upwards and still expects an acceleration in 2005, albeit at a more modest pace. Since the actual performance was better than expected, real GDP growth in Belgium has been revised upwards by 0.4 p.p. in 2004; it is now expected to accelerate from 1.3 p.c. in 2003 to 2.7 p.c. in 2004 and to stabilise at 2.5 p.c. in 2005, as the pace of growth is decelerating somewhat. It is still outstripping euro area growth, partly owing to stronger private consumption. Having significantly reduced their savings ratio in 2003 and 2004, individuals will gradually be able to rely on an improvement in their purchasing power, largely due to a better employment outlook. Job creation is expected to total 62,000 jobs over the period 2004-2005 while, following a slight fall in 2004, the unemployment rate is likely to remain unchanged, at 7.8 p.c., in 2005. Also, while exports will continue to benefit from robust external demand, the recovery should gradually extend to business investment in a context of strengthening demand, strong profitability and a sound financial environment. On the whole, economic growth should thus be more balanced. Compared to the June projection, headline inflation is expected to be higher, especially in 2005 when it is likely to accelerate to 2.2 p.c., as a result of the increase in oil prices. Underlying inflation excluding energy, unprocessed food and administrative prices is projected to remain moderate due to limited wage increases and subdued pressures from import prices, notwithstanding the high level of commodity prices. Despite a more favourable economic environment, the general government balance is expected to revert from a surplus of 0.3 p.c. of GDP in 2003 to a deficit of 0.3 p.c. in 2004 and 0.4 p.c. in 2005, mainly owing to the disappearance of one-off measures. The latter projection is nevertheless noticeably more favourable than in June. This difference is explained, inter alia, by the inclusion of the fiscal measures adopted in the 2005 budget of the various entities.Belgium, macroeconomic projections, Eurosystem

Economic projections for Belgium – spring 2005

Twice a year, in June and December, the National Bank of Belgium publishes the macroeconomic projections for the Belgian economy for the current and the following year. The current projections cover the years 2005 and 2006. These projections make up the national component of the broad macroeconomic projection exercise conducted within the Eurosystem ; the ECB publishes the aggregated results of this exercise for the euro area economy in its Monthly Bulletin. At the current juncture, the international environment is expected to remain supportive in 2005 and 2006, although real world GDP growth would be somewhat weaker compared to the impressive growth in 2004. Following the slowdown which hit the euro area since the summer of 2004, the Eurosystem expects, for the euro area, a gradual recovery from mid-2005 onwards and a deceleration of inflation from a higher level in the first months of 2005, due to receding pressure from energy prices, while domestic cost pressures should remain contained. In Belgium, GDP growth slowed down markedly at the end of 2004. During the first quarter of 2005, the level of activity even stabilised and business confidence further dropped. Compared to the projections of December, GDP growth for 2005 has thus been revised downwards by more than 1 percentage point towards 1.4 p.c. In line with the Eurosystem’s assumptions, the slowdown would be temporarily and activity should increase by 2.4 p.c. in 2006. A gradual strengthening of real household disposable income is expected in 2005, stemming mainly from financial income, and further in 2006, due to the proceeds of the tax reform. However, private consumption growth should be weak in the beginning of 2005, due to the high oil price level and the increased uncertainty of consumers regarding the economic situation. Domestic demand would nevertheless show some resilience in 2005 due to increasing investment. Also, towards 2006 exports would strengthen, supported by an improving international environment. Although employment growth is likely to slacken somewhat in the course of 2005, there would be a net creation of 62,000 jobs over the period 2005-2006. Still, the unemployment rate is likely to rise somewhat further, to 7.9 and 8 p.c. in 2005 and 2006 respectively, as the increase of the working population would slightly outpace the number of new jobs. Inflation is expected to increase to 2.2 p.c. in 2005, largely as a consequence of high energy prices, before decreasing to 1.9 p.c. in 2006. The underlying trend in inflation should however stay limited, at 1.3 and 1.6 p.c. in 2005 and 2006 respectively, as domestic cost developments should remain contained. Only taking into account the measures which have already been taken upon in the 2005 budget, the general government balance is expected to show a deficit of 0.5 p.c. of GDP in 2005 and of 1.4 p.c. in 2006.Belgium, macroeconomic projections, Eurosystem

Inflation and indexation in Belgium : causes and possible effects of the current acceleration in inflation

The particularly rapid acceleration in inflation in Belgium and the fact that it is currently outpacing inflation in the euro area has, in some circles, raised questions as to the role of the indexation mechanism. A first question which might arise concerns the extent to which that mechanism lies behind the current acceleration in inflation. A second question is whether that mechanism will maintain the current inflationary process by triggering a price-wage spiral. The article – which is based on the available HICP data up to April 2008 – examines these two questions, first analysing the factors at the root of the current acceleration in inflation and the positive gap between Belgium and the euro area, and then discussing the potential repercussions of the current inflationary process on wage setting. Regarding the first question, the analysis presented in the article provides a clear answer : neither the acceleration in inflation nor the positive gap in relation to the euro area can so far be attributed to the Belgian indexation mechanism. The acceleration in inflation is in fact due entirely to the strong pressure from prices of energy and processed food, whereas there has so far been no sign of any rise in inflation for three-quarters of the products making up the consumption basket, particularly nonenergy goods and services. What is more, it is precisely for this last category of goods that labour costs are most important as a determinant of inflation. On the second question, it appears that, in the current circumstances, and despite an undeniable moderating influence, the use of the health index did not prevent an acceleration in wage increases resulting from indexation in the first quarter of 2008. However, the law of 1996 on the promotion of employment and the safeguarding of competitiveness places Belgium’s indexation practice in a broader framework governing the movement in private sector wages. More particularly, the cycle of pay negotiations relating to 2009 and 2010, scheduled for the autumn, offers the social partners the opportunity to take account of the indexation when determining the pay increases, and thus to continue the tendency of recent years, which consists in reconciling indexation with responsible pay settlements. In these conditions it will be possible to prevent the triggering of a price-wage spiral, to contribute to the preservation of competitiveness and employment and to ensure that Belgian inflation does not remain permanently above the level in the euro area.inflation, indexation, second-round effects

Economic projections for Belgium – Spring 2010

The global economic recovery which had begun in mid 2009 has continued, though its strength has varied from one region to another. The emerging economies have been the driving force, propelling the revival of international trade, while the upturn is likely to be more gradual in the advanced economies, as is generally the case after economic recessions accompanied by a financial crisis. The euro area has also returned to positive growth since mid 2009, but this growth has been far less dynamic than in the rest of the world. Moreover, the increase in budget deficits and public debt has given rise to fears over the sustainability of public finances in some countries, causing renewed tensions on the financial markets. In Belgium, activity also started to pick up from the third quarter of 2009, although the pace remained moderate. Altogether, however, the decline in GDP of 3 p.c. in 2009 was slightly smaller than in the euro area as a whole, and growth is estimated to be a little more sustained this year and next. According to the projections, it will reach 1.3 p.c. in 2010 and 1.7 p.c. in 2011. At first, it is likely to be underpinned by foreign demand, while consumption and, later, investment should gradually gather momentum. The labour market has displayed some resilience, considering the seriousness of the economic recession. Job losses and the rise in unemployment were limited by large-scale use of temporary layoffs and by a sharp fall in corporate productivity. However, since these factors are likely to return to normal, the reduction in employment is projected to continue in 2010. Net job losses are estimated at 12,900 persons in the course of the year, following a decline of 38,500 units during 2009. Employment should resume growth during 2011. The unemployment rate increased from 7 p.c. in 2008 to 8 p.c. in 2009 ; it is forecast at 8.8 p.c. in 2011. Following a brief period of disinflation during 2009, resulting from negative base effects influencing the movement in energy prices, inflation began rising again at the end of last year and during the initial months of 2010, owing to the recent rise in international oil prices and the euro’s depreciation. While this factor will continue to play during the coming months, the pressures exerted by wages are expected to be contained at first, before gathering strength at the end of the forecasting period as economic activity picks up. In all, as an annual average, inflation – which had been zero in 2009 – is forecast at 2 p.c. in 2010 and 1.9 p.c. in 2011. According to the NAI data, Belgium’s public finances recorded a deficit of 6 p.c. of GDP in 2009. In the macroeconomic context described above, and taking account of the measures adopted by the federal and regional governments, if the policy remains unchanged that deficit should come to 5 p.c. of GDP in 2010 and 5.3 p.c. in 2011. After having declined continuously since 1993, to reach 84.2 p.c. in 2007, the ratio of public debt to GDP has been rising again in 2008, mainly as a result of the capital injections and loans granted to financial institutions, and in 2009, due to the economic recession. The debt ratio is projected to rise further, although at a slower pace, over the projection horizon, from 96.8 p.c. of GDP in 2009 to 100.2 p.c. in 2010 and 103.1 p.c. in 2011.Belgium, macroeconomic projections, Eurosystem

Economic projections for Belgium - Autumn 2005

Twice a year, in June and December, the National Bank of Belgium publishes macroeconomic projections for the Belgian economy for the current and the following year. These projections make up the national component of the broad macroeconomic projection exercise conducted within the Eurosystem ; the ECB publishes the aggregated results of this exercise for the euro area economy. The current projections are an update of the projections for 2005 and 2006 published in the spring in the Economic Review, 2nd quarter 2005. Since then, the price of oil has continued to rise and is expected to remain at around 60 dollars per barrel of Brent over the projection horizon. The US dollar has appreciated against the euro. The growth of activity has remained buoyant in most of the economic regions. In that context, after a temporary slowdown at the end of last year and the start of the current year, GDP growth in the euro area should strengthen in the second half of 2005 and in 2006. Inflation projections have been revised upwards, being influenced by the persistent high level for oil prices. In Belgium, after dipping at the beginning of the year, growth produced a modest recovery as predicted in the spring projections. The gradual strengthening of activity seen from the third quarter of 2005 should be maintained. In the short term, the recent business survey results indicate an upturn since the summer. More fundamentally, the sturdier growth appears to originate from the external sector, after the recent strength of demand from the business sector, both having so far stood up relatively well in the face of the oil shock. Conversely, the contribution of private consumption demand is likely to be curbed at first by the contained evolution in households purchasing power. In all, real GDP growth looks set to fall from 2.4 p.c. in 2004 to 1.4 p.c. in 2005. In 2006, it is predicted to reach 2.2 p.c., a downward revision of 0.2 percentage point compared to the spring, but once again a slightly higher figure than that forecast for the euro area. The number of persons in work in Belgium is estimated to increase by 0.7 p.c. in 2005, then by 0.5 p.c. in 2006, following a rise of 0.6 p.c. in 2004. In all, net job creation is expected to total around 75,000 for the period 2004-2006 as a whole, following a cumulative decline of 10,000 jobs in 2002 and 2003. However, in view of the expansion of the labour force, the number of job seekers is likely to continue to rise ; the unemployment rate is forecast at 8.4 p.c. in 2005 and expected to remain at that level in 2006. Overall, Inflation, measured by the harmonised index of consumer prices (HICP) is expected to average 2.5 p.c. in 2005 and 2.3 p.c. in 2006, or 0.3 and 0.4 point respectively above the spring projections. The forecast movements in Inflation and the revisions since the spring mainly reflect the rise in crude oil prices. The projections for public finances take account of the measures which were announced and were sufficiently well-defined in the budgets for 2006. Conversely, they do not anticipate any additional measures which might yet be adopted. On basis of the latest information, it seems that public finances should be in balance once again at the end of 2005. Taking account of the partly structural and partly non-recurring consolidation measures introduced in connection with the budgets, the projections for 2006 now point to a deficit of just 0.4 p.c. of GDP against 1.3 p.c. of GDP in the spring projections. The deterioration in comparison with 2005 is likely to be due to a further fall in the primary balance following the decline in revenue attributable to the effects of the personal income tax reform on the tax assessments, and to the reduction in social security contributions.Belgium, macroeconomic projections, Eurosystem