Belgium Country Forecast Highlights

Election Yields Doubts

• Over the next five years, the PS is likely to emerge from the election required by 2014 in a weakened position, the government formed after the election will most likely be a center-right coalition including the Flemish and Walloon liberal and Christian democratic parties…
• The N-VA won enough support in the June 2011 elections for the king to ask party leader Bart De Wever to form a government, but since he has already ruled out any compromise on the issue of political decentralization, his efforts are not likely to be successful unless he bends on that issue…
• The N-VA’s main plank in the June elections was a call to strengthen the federal system by expanding the policy-making powers of the regional administrations of Dutch-speaking Flanders and French-speaking Wallonia…
• The task of forming a government is likely to shift to Elio Di Rupo, leader of the PS, who will be more inclined to make the concessions required to win the backing of parties from both regions, which is essential to establishing a reasonably stable majority coalition…

Budget Gap Stunting Growth

• Belgium’s public-sector debt burden has moved dangerously close to 100% of GDP, and this has led to pressure from the European Commission (EC) and the international markets for a program of fiscal consolidation and debt reduction…
• The country cannot afford a prolonged period of being governed by an interim regime that lacks a mandate to implement the unpopular spending cuts or tax increases that will be required to achieve those objectives…
• The public debt burden will continue rising, and Belgium may be next in line for greater scrutiny by the financial markets, creating more pressure to rein in spending in 2011, making the best-case scenario for the economy in 2010 real GDP growth of less than 1%…