Belgium’s Economy Slows as European Recovery Loses Momentum

Belgium’s economic growth slowed in the second quarter as Europe’s recovery lost momentum amid government budget cuts and concerns that the sovereign-debt crisis will spread.

Gross domestic product in Belgium, the euro area’s sixth- largest economy, expanded 0.7 percent from the first quarter, when it grew 1 percent, the National Bank of Belgium in Brussels said today in a statement. GDP rose 2.5 percent from a year earlier in the three months through June, down from 3 percent in the first quarter.

The slower growth may complicate efforts to narrow the budget deficit as a political stalemate has left the country without a full-time government for more than a year. With coalition talks now on hold until mid-August, Belgian 10-year bond yields have risen to a two-year high and the premium investors demand to hold the securities instead of German equivalents is near a record.

Investors are concerned that a new Greek aid package and enhanced crisis-fighting measures announced last week won’t be enough to contain the turmoil. European worries have been exacerbated by a political stalemate among U.S. politicians over increasing the government debt limit.

European markets were rattled again today after Moody’s Investors Service said it placed Spain’s Aa2 credit rating on review for a possible downgrade, citing concern about implementation of the European rescue fund. Italy also is on review for downgrade at Moody’s.

Budget Deficit

Standard & Poor’s Ratings Services said on June 14 that its negative outlook on Belgium’s AA+ credit rating remained unchanged and reflected a one-in-three chance the euro region’s third-most indebted nation’s rating would be cut over a period of six months to two years.

Caretaker Prime Minister Yves Leterme on July 12 lowered the deficit forecast, saying this year’s budget shortfall would amount to about 3.3 percent of GDP, compared with 3.6 percent previously forecast. Still, business confidence fell for a fourth month in July amid slowing output and falling orders in the manufacturing industry, the central bank said in a report on July 25.

The yield on the Belgian 10-year bond was at 4.34 percent today, after reaching 4.41 percent on July 19, matching the highest in the past two years. The 10-year premium, or spread, over German bonds increased for a sixth day, rising to 175 basis points, near the record 178 on July 12.

Elio Di Rupo, the leader of Belgium’s French-speaking Socialists, will resume coalition talks that include eight potential partners in mid-August, the royal palace said July 22.

To contact the reporters on this story: Jones Hayden in Brussels at jhayden1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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