Bloomberg News

Belgian Economy Stalled in Third Quarter on Debt Crisis

October 28, 2011

(Updates share trading in fourth paragraph. For more on the European sovereign-debt crisis, see EXT4.)

Oct. 28 (Bloomberg) -- Belgium’s economy stalled in the third quarter as European leaders struggled to contain a worsening debt crisis and signs increased that the euro region is heading toward a recession.

Gross domestic product in Belgium, the sixth-largest economy in the euro area, was unchanged from the second quarter, when it grew a revised 0.4 percent, the National Bank of Belgium said today in a statement. That’s the worst performance since the country emerged from a recession in 2009. GDP rose 1.8 percent from a year earlier in the three months through June, down from a revised 2.2 percent in the second quarter.

European leaders yesterday announced an agreement to bolster their crisis-fighting effort by boosting the euro region’s rescue fund, recapitalizing banks and persuading bondholders to take 50 percent losses on Greek debt. While European stocks initially rallied on news of the deal, they retreated today on concerns negotiations over the details of the agreement may get bogged down.

After jumping 3.6 percent yesterday, the Stoxx Europe 600 Index was down 0.3 percent today at 3:20 p.m. in Brussels. Still to be worked out by European officials is how the firepower of the rescue fund will be leveraged and what banks will get in return for accepting the Greek haircut. As next week’s Group of 20 summit looms, euro-area nations remain under pressure to restore fiscal order.

Support Measures

Moody’s Investor Service on Oct. 11 placed Belgium’s Aa1 local- and foreign-currency ratings on review for a possible downgrade because of rising funding risks in the euro countries with high levels of debt and additional bank support measures which are likely to be needed.

Belgium agreed this month to pay 4 billion euros ($5.7 billion) to buy Dexia SA’s Belgian retail-banking unit and to guarantee 60 percent of a so-called bad bank to be set up for the Dexia group’s troubled assets.

Belgian business confidence fell for a seventh month in October, the longest stretch of declines since 1995, as manufacturers curbed output amid slowing orders, data showed this week. A gauge of demand expectations in the services industry fell to a two-year low.

Capacity utilization at the nation’s manufacturers has declined for two straight quarters, with executives signaling that both domestic and export orders, according to the confidence report.

In neighboring Germany, one of Belgium’s main trading partners, business sentiment dropped to a 16-month low this month as the debt crisis threatened to push Europe’s biggest economy into a contraction. Across the euro region, the manufacturing and services industries contracted at the fastest pace in more than two years in October.

Belgium’s economic growth in the second quarter was initially estimated at 0.5 percent from the prior period and 2.3 percent from a year earlier.

--Editor: Peter Chapman

To contact the reporter on this story: Jones Hayden at jhayden1@bloomberg.net

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


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