Country Report Belgium February 2009

Outlook for 2009-10

• The Economist Intelligence Unit expects the government, consisting of the Flemish and francophone Christian Democrats and Liberals and the francophone Socialists, to serve its full term until 2011.
• The change at the head of the government, from Yves Leterme to Herman Van Rompuy, has refocused attention on the smouldering crisis over Flemish demands for the devolution of power to the regions.
• Devolution negotiations will be carried out by regional and community politicians, but we expect little progress to be made before the regional elections in June 2009, as parties are unwilling to make concessions.
• The government will try to implement an economic recovery programme aimed at achieving wage moderation, encouraging lending, boosting purchasing power and supporting public investment.
• We expect the budget deficit to grow to 2.5% of GDP in 2009 before narrowing to 1.6% of GDP in 2010. The government expects the economic recovery package to cause the deficit to rise to 1.8% of GDP in 2009.
• Domestic and foreign demand will fall in 2009, causing GDP to contract by 2%. In 2010 private consumption, investment and export growth will pick up moderately, causing GDP growth to rise to 0.6%.

Monthly review

• Since assuming the role of prime minister in December, Herman Van Rompuy, has focused on the accelerating economic recession in Belgium, but he has also committed to restarting the stalled devolution talks.
• The francophone Socialists and Liberals and the Flemish Christian Democrats and Liberals are neck-and-neck in opinion polls ahead of the regional election in June.
• Denying any wrongdoing in a court case relating to the buyout deal of Fortis bank by the French banking giant, BNP Paribas, former prime minister, Yves Leterme, has resumed his seat in the upper house of parliament.
• The 2009 budget was passed on January 8th, but the state secretary for the budget admitted that the macroeconomic assumptions underlying the budget are out of date. The assumptions will be reassessed in late February.
• The Luxembourg division of Icelandic bank, Kaupthing, and Belgium's third-largest financial services firm, KBC, received government aid. KBC was forced to rebuild capital after its shares fell sharply in mid-January.
• Consumer and business confidence both recovered marginally in January, but remained at low levels.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;39
NAICS Code: 52;31