Country Report Belgium May 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 focused 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, at least 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 4.7% of GDP in 2009, narrowing to 4.5% of GDP in 2010. The government expects a deficit of 3.4% in 2009.
• Domestic and foreign demand will fall in 2009, causing GDP to contract by 4.2%. In 2010 consumer demand and export growth will stagnate and investment will contract by 0.2%, resulting in a 0.6% contraction in GDP.

Monthly review

• Opinion polls have confirmed earlier forecasts for party performances in the regional elections on June 7th, with the Greens gaining support in Wallonia and three right-wing parties gaining support in Flanders.
• In April the prime minister, Herman Van Rompuy, outlined the government's priorities: balancing the budget, addressing the issue of illegal immigrants, finding agreement on nuclear energy and negotiating constitutional reform.
• A report produced for the parliamentary committee on the financial and banking crisis concluded that the Belgian banking system suffers from both adverse incentives and weak prudential oversight.
• The vote on a revised deal for the takeover of Fortis Bank Belgium by the French banking giant BNP Paribas was delayed until April 28th. With all Fortis shareholders allowed to participate, we expect the deal to be approved.
• The minister of finance, Didier Reynders, has argued against a European Commission demand that notional interest deduction should be extended to capital held outside of Belgium but within the European Economic Area.
• Annual bank lending to firms slowed from 8.9% in December 2008 to 5.4% in January 2009, before accelerating moderately to 6.7% in February. Although lending criteria remain tight, the cost of borrowing has declined.

This report covers the following industry codes:
SIC Code: 37
NAICS Code: 336