Country Report Belgium September 2009

Summary

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 more hardline stance on devolution.
With the regional elections over, we expect devolution negotiations to resume after the mid-year break. Prospects for progress are poor, as both sides are likely to adopt an even more entrenched position on the issue.
The government will try to implement an economic recovery programme aimed at encouraging lending, boosting purchasing power and supporting public investment.
We expect the budget deficit to average 6% of GDP in 2009-10. Belgium may come under the excessive-deficit procedure, but pressure to reduce the deficit will be limited by the fact that other EU countries expect larger deficits.
Domestic and foreign demand will both contract over the forecast period, causing GDP to fall by 3.2% in 2009 and by 0.3% in 2010. GDP in the euro area is expected to contract by an average 4.3% in 2009 and to stagnate in 2010.

After the mid-year recess, the government faces a deadline of September 20th for submitting its economic stability plan to the European Commission.
The prime minister, Herman Van Rompuy, aims to have a devolution agenda agreed by mid-2010, when Belgium takes over the EU presidency, but he does not have a direct role in the negotiations. This goal seems unlikely to be met.
The social insurance system requires significant contributions from the government to remain out of deficit, which is increasingly weighing on government accounts.
Although the biggest banks seem well capitalised, there is some turmoil in the financial sector, as the European Commission questions Dexia's restructuring and allegations related to the Fortis bail-out are made.
The port of Antwerp is losing approximately ???70m worth of traffic per year to other ports with deeper harbours, but the Dutch government has delayed dredging the Schelde river in the face of environmentalist opposition.
Both consumer and business confidence continued their upward trend, supported by a stabilisation in unemployment and insolvencies.

This report covers the following industry codes:
SIC Code: 37;60
NAICS Code: 336;52