Country Report Belgium March 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.
• An early election cannot be ruled out, but is unlikely before the regional election in June 2009. The parties' campaigns have focussed on the recession, and a shift to provoking early elections would be unpopular with voters.
• Devolution negotiations will be carried out by regional and community politicians, but constitutional reform discussions are currently stalled until after the regional elections in June.
• 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 3.6% of GDP in 2009 before narrowing to 2.9% of GDP in 2010. The government expects a lower deficit of 3.4% of GDP in 2009.
• Domestic and foreign demand will fall in 2009, causing GDP to contract by 2.2%. In 2010 private consumption, investment and export growth will pick up moderately, but GDP will contract by 0.3%.

Monthly review

• Devolution negotiations were stalled until the June regional elections when the minister of finance and francophone Liberals' leader, Didier Reynders, refused to proceed until agreement was reached on three francophone mayors.
• On February 11th Fortis Holding shareholders voted down the nationalisation of Fortis Bank Nederland and the proposed buy-out of Fortis Bank by the French banking group BNP Paribas.
• In its mid-February review of the 2009 budget, the government estimated that GDP will contract by 1.9% and the budget deficit will rise to 3.4%. This deficit estimate includes outlays for the economic recovery programme.
• Targeted income-tax reductions for groups such as senior citizens were removed from the government's economic recovery programme.
• The Flemish regional government may offer aid to both Ford and Opel (General Motors), two American car manufacturers with major assembly plants in Flanders that have been severely hurt by the global recession.
• Consumer and business confidence fell again in February following a moderate recovery in January. Business confidence reached a new record low at a score of 31.6.