Feb. 15 (Bloomberg) -- Belgium needs additional budget cuts of at least 1 billion euros ($1.3 billion) to meet its 2012 deficit target as the central bank forecast the euro region’s sixth-largest economy will contract this year.
Belgium’s budget deficit will reach 3.1 percent of gross domestic product this year following a 2011 shortfall of 3.8 percent that was narrower than previously estimated, the National Bank of Belgium said today. The Belgian economy will contract 0.1 percent in 2012, the bank forecast, cutting a Dec. 14 prediction for growth of slightly less than 0.5 percent.
Central bank Governor Luc Coene urged Prime Minister Elio Di Rupo’s six-party coalition to maintain its deficit target of 2.8 percent of GDP this year and said an additional 1.3 billion euros of cuts are needed if the government wants to unblock planned expenditure that was frozen last month to win a reprieve from European Union sanctions.
“The growth rate in government expenditure remains a fundamental problem that needs to be solved and it is closely linked to an increase in public-sector employment,” Coene told reporters in Brussels on Feb. 14. His comments were embargoed until today. “One should do more to stimulate economic growth and make the budgetary correction a bit easier.”
Public spending less debt-servicing costs in Belgium increased an average 2.8 percent a year in the past decade, reaching 49.9 percent of GDP last year and surpassing an economic expansion that averaged 1.6 percent annually in the period, according to the central bank’s annual report.
Last year’s deficit will be revised down to 3.8 percent of GDP from 4 percent because Belgian municipal finances are in better shape than previously estimated, Coene said.
An analysis of actual budget data covering about 80 percent of local authorities, rather than extrapolations based on samples, will show next month that the central bank overestimated their capital spending, he said. At the same time, income from investments was higher than previously estimated, according to Coene.
The central bank also raised its forecast for the average increase in 2012 consumer prices to 2.6 percent, from a Dec. 14 prediction for inflation of 2.4 percent, saying the change is entirely due to an increase in indirect taxes including value- added tax.
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