Respondents indicated that while activity had decelerated less than initially feared, economic conditions remain challenging in the second quarter of 2024. Expectations for activity growth in the second half of the year are very moderate and affected by considerable uncertainty. Few respondents expected activity to rebound strongly anytime soon.

Cost pressures have receded and sales price growth should continue to decelerate. Nearly all respondents pointed to the more moderate increase in wage costs and the decline in many other input costs, including that of energy. This should continue to fuel the disinflation process.

While job creation slowed sharply in recent months, Business Echo interviews suggest that the labour market has passed the trough. This is in line with the recent uptick in employment expectations revealed by the NBB’s monthly business survey. Although labour market tightness has eased somewhat, finding qualified workers continues to pose a challenge across industries, including those offering attractive wages and favourable working conditions. Labour hoarding remains higher than usual, and few companies plan to cut their permanent workforce.

Investment growth was reported to have moderated. This is due more to lower profitability, which is prompting firms to reduce expenses and enhance operational efficiency, than to tighter external financing conditions. Investments are still primarily focused on the modernisation of production processes or facilities, the seeking of efficiency gains through digitalisation and automation to offset rising wage costs, and the greening of production processes. Few firms reported plans for expansionary investment activities in Belgium.

Manufacturing fundamentals have stabilised but remain weak, albeit with tentative signs of improvement in the near term. In general, conditions are still better in the services industries, but managerial sentiment has softened in a broad range of industries, particularly consumer-oriented services and some business-related services.

Regional differences are modest overall, although the interviews confirmed that economic conditions remained more resilient in the Walloon Region. This could be due to upbeat sentiment in the important pharmaceutical industry, as well as a relatively larger share of sales linked to demand from government agencies.

These factors will be taken into account in the upcoming Business Cycle Monitor (BCM), which will be published on 5 June 2024.