Country Report Belgium November 2011
Market Research Report

Country Report Belgium November 2011 Market Research Report

Outlook for 2012-16

• The Economist Intelligence Unit central forecast is that Belgium will still exist in 2016, but this cannot be taken for granted. Agreeing a split between the Flemish and francophones would be as difficult as agreeing to stay together.
• Policy will focus on reducing the fiscal deficit, but the escalating euro zone crisis will weigh on investor and business sentiment. There will be tension over how to share austerity between the regions and the federal government.
• Negotiations are under way between six of the main political parties in order to form a coalition government. We expect a new but unstable government to be formed before the end of 2011.
• Our central forecast is for the general government deficit to narrow from 4.2% of GDP in 2010 to 3.8% in 2011 and to 2.5% by 2016.
• We forecast that real GDP growth will slow to 2% in 2011, weaken further to just 0.4% in 2012, and average under 2% over 2013-16.
• Inflation as measured by the EU harmonised index is forecast to average 3.3% in 2011 and about 2.5% over the rest of the forecast period. It will be boosted by the wage indexation system.

Monthly review

• The negotiating parties have reached agreement on the distribution of power between the country's Flemish and French-speaking communities, the sixth constitutional reform since the Belgian state was formed in 1830.
• A new six-party coalition government is likely to be formed in the next few months, comprising the three traditional parties from each language community. The Green parties were not invited to join the coalition.
• In order to bring the 2012 deficit down to 2.8% of GDP and to put the budget back in balance by 2015, the negotiators are trying to agree on savings of about EUR11.3bn.
• The Belgian arm of a leading bank, Dexia, will be nationalised by the Belgian state, the French operations will remain under French control, and the group's toxic assets will be placed in a "bad bank" guaranteed by both governments.
• A flash estimate released on October 28th by the National Bank of Belgium (NBB, the central bank) showed that the economy stagnated on a quarterly basis in the third quarter of 2011. Output was 1.8% higher than a year earlier.
• Inflation remained high in October, at 3.6%, rising from 3.4% in August and September. The health index, which is used to adjust wages, social benefits and rents for inflation, reached 117 in October.

Please Note: Due to the Nature of This Report The Toc is Not Available