Interest rate increases come at the expense of economic growth, and we see the consequences in the construction, catering and housing markets

Dear reader,

We are currently experiencing deflation in Belgium and the Netherlands: the general price level has fallen compared to last year. If you’re wondering why you don’t notice this in the supermarket – food prices keep rising – then that’s perfectly understandable. This deflation has everything to do with the fact that gas prices were historically high last year and that they have now fallen to a more normal level. It is a problem with the method of calculating inflation that economists Gert Peersman and Koen Schoors have shown. In short, it means that inflation figures were overestimated last year and are currently underestimated.

But in itself it does not alter the conclusion that the very difficult times are behind us, at least as far as inflation is concerned. But that took a lot of blood, sweat and tears. The ECB had to raise interest rates by five percent in just over one year. And that is always at the expense of economic growth, as loyal readers of this newsletter have now understood. We are seeing the first consequences of this in cyclically sensitive sectors such as the construction sector, the housing market and the catering industry.

But in general, our country is still doing well: it was able to produce growth figures of 0.5 percent in the third quarter, compared to 0.2 percent previously predicted. It means that we have exceeded expectations. It once again highlights how difficult it is to make economic predictions in turbulent times. Since the pandemic, it has been raining doomsday reports, which often do not come true. For example, most economists predicted an economic recession. Well, that hasn’t happened and it probably won’t happen for our country either.

But that does not mean that we suddenly have to declare victory. The energy issue continues to simmer in the background, with supplies in particular extremely precarious. Gas pipelines remain an attractive target for geopolitical games – just think of the attacks on Nord Stream 1 and 2 – and Qatar is a questionable ally. Moreover, energy companies also ignore the climate goals, with Europe wanting to be climate neutral from 2050. Valerie Trouet, scientific director of the Belgian Climate Center, therefore advocates stopping subsidies to the fossil fuel sector. “How do you justify this when we simultaneously have to halve our greenhouse gas emissions within seven years?”

Imagine that Eupen, Kortrijk, Westerlo and STVV would compete for the football national title this season and that Club Brugge and Antwerp would be at the bottom. A completely unrealistic scenario, but it could be perfectly possible in the United States. The Americans are not really enthusiastic about socialism – it is one of the most unequal Western countries – but, bizarrely, this does not apply to the sports system. With some imagination, this could even be called downright communist with a salary ceiling, the draft and the redistribution of income from ticket sales, among other things. The intention is to increase competitiveness in the four major American leagues – American football (NFL), basketball (NBA), baseball (MLB) and ice hockey (NHL). And that works. Since 2010, all teams have reached the play-offs at least once. Perhaps an idea to extend to American society.

Until next week,

Dimitri Thijskens

Economics journalist