Country heading for recession

Summary

The Belgian economy will shrink this year by 2.5%, according to forecasts by the International Monetary Fund (IMF), which warns that the country is heading for a “deep recession”. The federal budget deficit will go up to 4%, where it will remain until 2014. At the same time, unemployment will grow to almost 10%.

Luc Everaert
 
Luc Everaert

“A lost decade for Belgium” says monetary fund division chief

The Belgian economy will shrink this year by 2.5%, according to forecasts by the International Monetary Fund (IMF), which warns that the country is heading for a “deep recession”. The federal budget deficit will go up to 4%, where it will remain until 2014. At the same time, unemployment will grow to almost 10%.

The IMF’s latest forecasts, presented last week by Luc Everaert, the Belgian chief of the regional studies division at the European department of the IMF, are significantly gloomier than interim forecasts released three months ago. Those showed negative growth of only 0.7% and a budget deficit of between 2 and 2.5%.

 

Government debt, meanwhile, is expected to rise to 91.8% of GDP – a much higher figure than in neighbouring countries, but not so high as the 94.8% figure predicted by the National Bank last month. Because of the anticipated slow pace of economic recovery, the debt as a share of GDP will go up to 95.9% over the period to 2014.

 

At that point the IMF’s crystal ball goes cloudy. “It is already clear that the period 2004-2014 is a lost decade for Belgium,” said Everaert.

 

Part of the cause of the sudden increase in the federal debt burden, which began last year, was the support given to financial institutions like Dexia and Fortis banks. That alone was responsible for an increase of six percentage points. And the damage may not be over, the IMF concludes. Further help could be needed by the institutions already affected as outside factors come into play – such as the vulnerability of the banking sector in Eastern Europe, to which most Belgian institutions are exposed to a greater or lesser extent. “The financial situation is extremely fragile,” commented Jeffrey Franks, IMF delegation leader.

 

The Belgian government’s reaction to the crisis was “coherent and clear,” Franks said, but more needs to be done. “Plans will now have to be set up for problems which might appear in the months to  come. That demands better and more structural cooperation between the different regulatory bodies.”

 

Country heading for recession

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