News and Finance

Belgium's economy may be heading for the first recession in six years as the global financial crisis undermines growth across Europe and forces governments to rescue banks, central bank Governor Guy Quaden said.

“I expect the fourth quarter of 2008 and first quarter of 2009 are probably negative'' in terms of economic growth, Quaden, who also sits on the European Central Bank's Governing Council, told L'Echo in an interview published today. The Belgian central bank confirmed his comments. The technical definition of a recession is two successive quarters of economic contraction.

European economies are under pressure as the financial turmoil that has prompted interest-rate cuts spreads to industries beyond banking. European confidence in the economic outlook is at a 15-year low after falling by a record this month, data yesterday showed.

“Even if, as a matter of speaking, the problems in the financial sector would be solved overnight, then we would still face negative quarters,'' said Bart Van Craeynest, an economist at KBC Bank NV in Brussels. He expects a contraction this quarter and in early 2009, with a “slight improvement'' in the second half of next year if the financial industry recovers.

The Belgian economy, the sixth-largest among the 15 nations sharing the euro, last contracted for two straight quarters in the last three months of 2002 and the first quarter of 2003. Economic growth slowed to 0.2 percent in this year's second quarter and business confidence fell to the lowest in more than five years this month. Third-quarter growth figures are scheduled to be released at 3 p.m. today in Brussels free creditreport.

Belgian Government

“Growth will in any case be closer to 0 percent than 1 percent'' next year, Quaden said.

The Belgian government this month gave up its target of a budget surplus of 0.3 percent of gross domestic product after spending 11.4 billion euros ($14.5 billion) to prevent Fortis and Dexia SA from collapsing. In total, Belgium has injected 18.9 billion euros of capital into four financial institutions to help them weather the credit-market turmoil.

“If growth falls to zero or below zero, then seeking to reach a balanced budget at all costs in these conditions is probably impossible and moreover not desirable,'' Quaden said in the interview. “My message is therefore no fundamentalism in the search for a balanced budget at too high a cost for economic growth and employment.''

24-Year Peak

With expansion slowing and oil prices down more than 50 percent from the July peak, inflation in Belgium eased to 4.7 percent in October, data showed yesterday. While that is down from the 24-year peak of 5.9 percent in July, it remains above the average for the euro region, which was 3.2 percent this month, a report today showed.

“Consumers in general and myself as a central banker have been annoyed to see inflation in Belgium reach such top levels, well above the median of the euro zone,'' Quaden said. “My wish is therefore that inflation recedes faster than in the rest of the euro zone.''

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