Country Report Belgium October 2009

Outlook for 2010-11

• 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 success of two right-wing, populist parties in Flanders in the regional elections in June 2009 will cause the mainstream Flemish parties to adopt a hardline stance on devolution, making a compromise agreement difficult.
• The electorate is more concerned about economic issues, but inter-communal tensions between Flanders and Wallonia might come to the fore again over the issue of Belgium's growing budget deficit.
• The government has implemented a recovery package agreed in early 2009, but we expect the fiscal stimulus element of the package to go partially into reverse in 2010 as the government focuses instead on fiscal consolidation.
• After rising sharply to an estimated 6% of GDP in 2009, we expect the budget deficit to rise further to 6.6% of GDP in 2010 before narrowing to 5.1% of GDP in 2011. Belgium is likely to come under the excessive-deficit procedure.
• After contracting sharply in 2009, domestic and foreign demand will both resume moderate growth in 2010-11, underpinning GDP growth of 0.4% in 2010 and 1.2% in 2011.

Monthly review

• The federal and regional governments agreed that the former will contribute 65% of the effort to bring down the deficit while the latter will contribute the rest. Determining exactly how this will be achieved will be a political battle.
• The prime minister has called on the European Commission to investigate subsidies granted to Opel by the German government, which could influence the company's decision on the future of the Opel plant in Antwerp.
• The government implemented an illegal immigrant amnesty in order to legalise the status of a number of illegal immigrants and asylum seekers.
• The High Council of Finance published a report claiming that Belgium's budget deficit could reach 7.4% of GDP by 2015 and that public debt could reach 137% of GDP by 2020.
• The vice-premier has been promoting a proposal on executive compensation, restricting the size of severance bonuses for executives to no more than 12? months' pay. The Council of State claims the proposal is discriminatory.
• Consumer and business confidence continued their upward trend, but both remain significantly negative.
• Consumer prices continued to fall, by 0.7% in August.

Source: Country Report