Belgian Government Highly Unstable

Belgium is a small open economy located between Germany and France. Exports represent more than two-thirds of GDP. Belgium exports mostly to other countries within the EU but the share of exports to countries outside the EU is increasing. Belgium has no natural resources and imports raw materials, machinery and so on to use in production.

GDP declined from 2008 to 2009, mainly because of a sharp temporary decrease in exports. Still, GDP has recovered fast and is now above its pre-crisis level. Belgium has experienced negative growth in two of the past four quarters. Belgian GDP was unchanged in Q3 12 compared with Q2 12 when it fell by 0.5% q/q.

The government budget deficit was within 3% of GDP from 2000 to 2008. During the crisis, the budget deficit increased to 5.5%. The deficit is expected to fall below the 3% limit in 2012. The deficits have caused government debt to rise and it is now close to 100% of GDP, which is above the euro area average.

Belgium did not experience a sharp fall in house prices and real estate activities and house prises are hovering close to the all-time high. However, there are some small signs that house price increases have come to a standstill.

The political situation has been very unstable in recent years. In December 2011, a new government was formed (coalition of six parties) after more than 18 months without a government following the election in June 2010. Part of the deal was an agreement on the sixth state reform, which transforms political and economic power from the federal level to the regions. The political problems have arisen from cultural and economic differences between Walloons and Flemish.

Economically, Flanders has a higher skilled labour force, higher productivity, lower unemployment and GDP per capita than Walloon. Flanders is mainly service oriented and Walloon is mainly industry oriented. Brussels is the "capital of Europe" and has a number of headquarters and institutions, including the European Commission/Parliament, NATO headquarters and the Belgian federal government. For this reason, Brussels is mainly service oriented.

To Read the Entire Report Please Click on the pdf File Below.