Belgium's Growth Slows to Lowest Rate in Three Years

By Jurjen van de Pol and Fergal O'Brien

July 30 (Bloomberg) -- Economic growth in Belgium weakened to the slowest pace in more than three years in the second quarter as soaring inflation sapped consumers' purchasing power and foreign demand cooled.

The Belgian economy, the sixth-largest in the euro region, expanded 0.3 percent from the prior quarter, the lowest rate since the first three months of 2005, the nation's central bank in Brussels said today. From a year earlier, growth eased to 2 percent from 2.2 percent.

The weaker growth in Belgium may be repeated across the 15 nations that share the euro as surging oil and food prices lift costs and erode demand. The Bank of Spain today said the Spanish economy grew the least in 15 years in the April-June period, while economists at Citigroup Inc. and Barclays Capital forecast that the overall euro-area economy probably contracted in the latest quarter.

``Consumer confidence has declined in the second quarter, also business sentiment, so consumption was rather weak,'' said Peter Vanden Houte, chief economist at ING Belgium in Brussels. ``It will be the same elsewhere. We think German growth will be negative in the second quarter and all in all, euro-area growth will be close to zero.''

Belgian consumer sentiment fell to the lowest in almost three years this month and business confidence also declined. Brussels-based Delhaize Group on July 18 cut its annual profit and sales forecasts and now expects its operating margin to contract for the first time in six years.

Fastest Pace

Inflation accelerated in July to 5.9 percent, the fastest pace in almost a quarter-century, the Ministry of Economic Affairs in Brussels said in a separate report today. A 58 percent jump in crude oil in the past year has pushed up gasoline prices and home heating costs across the euro region.

Adding to pressure on Belgium's economy, the four-month-old government collapsed in mid-June after failing to heal a rift between French- and Dutch-speaking parties that threatens to split the country. King Albert II last week urged Prime Minister Yves Leterme to overcome linguistic and economic differences between the Dutch-speaking region of Flanders in the north and French-speaking Wallonia in the south.

The Belgian central bank last month cut its economic-growth forecast for this year to 1.6 percent from 1.9 percent, which would be the slowest expansion since 2003. Growth is expected to cool further to 1.5 percent next year, according to the bank, compared with 2.7 percent in 2007.

Economic Activity

``Economic activity is going to be lower than what we have known in the last years,'' Guy Quaden, head of the central bank, said in making the forecasts.

The central bank also raised its inflation outlook for this year to 4.1 percent, which would be more than twice the 2007 rate. Euro-area inflation is expected to accelerate to 4.1 percent this month, according to a Bloomberg News survey of economists. The euro-area price data will be published tomorrow.

To contact the reporters on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net; Fergal O'Brien in Dublin at fobrien@bloomberg.net.