The Belgian National Bank Index Weakens

The Belgian National Bank index fell to -16.4 in January from -12.7 in December, snaking below its November 2023 level of -15.0. The index by itself is not particularly significant except it does track quite effectively both the German and the EU indexes issued by the European Commission. Since the Belgian index is released first, it's a harbinger of what we can expect from those other indexes and what's suggested here is that there will be further deterioration in January.

The total index The total industry Belgian index has a correlation of 0.85 with the EU index and of 0.78 with the German index. However, it's correlation based on month-to-month changes is even higher, at 0.92 with the EU changes and 0.85 with the German changes. These are all respectably high numbers and the correlations with the changes are quite high. The correlation on the changes corresponds with an R-squared with the EU of 0.86 and an R-squared with the German changes of 0.72.

Manufacturing in Belgium The Belgian manufacturing index slips to -22 in January from -17.8 December and is below its November value of -19.3. In January, the production trend turned more deeply negative, logging a reading of -19 compared to -7 in December and -5 in November. The domestic and foreign order trends also deteriorated in January compared to December; however, the foreign order trend in January is above its November level. Prices continue to show negative values and then in January the price trend declined by more after declining by less in December.

Other Belgian sectors Wholesaling and retailing strengthened in January compared to December, but metric is weaker than its November reading. Similarly, construction weakened relative to December but it's stronger than its November reading. Business services along with inventories are the only surveyed metrics that show positive readings. In January business services weakened compared to December, falling to +4.6 from +9.8; however, the January reading is still stronger than the November reading.

Trending changes Looking at changes in these metrics, only business services show positive changes over three months, six months, and 12 months. Prices and domestic order trends are the only metrics that show positive changes over three months and six months.

Rank standings The rank percentile standings reveal that weak readings abound in every one of the categories, showing percentile standings below their respective 50th percentiles everywhere. That means that all the readings are below their respective medians for this period. Data in the table are ranked across observations back to January 2010.

The distribution of weakness is concentrated in the areas of ‘very weak’ The only category close to its median for the period was inventories with the 49.2 percentile standing. After that, the next strongest standing is business services at a 38-percentile standing, followed by prices at a 25.8 percentile standing. The third highest standing in the table is at the border of its bottom quartile! After ‘prices’ all the categories are somewhere in their 15th percentile with all but one of the remaining categories below their respective 10th percentiles.

Weak with weak momentum These conditions show us a great deal of weakness in Belgium from an index that is highly correlated with German and EU indexes. The only momentum in this table comes from Belgian business services where there's a steady diet of positive changes underway. The changes that are underway for business services are tending to get larger/stronger over shorter periods, which is a good sign. However, manufacturing continues to show negative results and the current assessment for orders continues to show negative results.

The outlook and other recent metrics The recent PMI data released by Standard and Poor’s suggested some stabilization and even improvement on the manufacturing side; we don't see that in the Belgian index. We'll want to watch the upcoming EU survey to see if it tracks the Belgian signal or the S&P signal. Central banks have been making progress on inflation; combining that fact with firmness on the economic side complicates the outlooks that markets have formed for central banks to engage in more neutral policies going forward since the inflation overshoots are appearing to be less troublesome. But the trends for inflation are still hard to pin down and the suggestion in the PMI data that things are getting better is still only a suggestion. However, that ‘suggestion’ was reinforced by the release of U.S. fourth quarter GDP which was certainly an eye-opener. U.S. GDP growth slowed down very little and continued to post a strong fourth quarter number with real growth above 3%. The Fed in the U.S. will not be so eager to lower rates if GDP growth stays ‘that’ strong. The outlook for growth and for central bank policy remains quite uncertain with incoming data continuing to surprise economists in various ways. Looking to the year ahead, we must be far less certain than we might have been at the end of 2023 about how the year will unfold.