June 7, 2019 / 12:07 PM / 13 days ago

Belgian central bank cuts growth forecasts, warns on deficit

BRUSSELS, June 7 (Reuters) - Belgium’s central bank cut its forecasts for growth in the euro zone’s sixth-largest economy for this year and next, principally due to slowing international trade, and said the budget deficit would deepen without action.

The bank cut its forecasts for growth in gross domestic product (GDP) in 2019 to 1.2% from a previous 1.4% and in 2020 to 1.1% from 1.3%, following an expansion of 1.4% in 2018.

For 2021, it still sees growth of 1.2%.

Assuming no policy change, Belgium’s budget deficit would widen to 1.3% of GDP in 2019 from 0.7% in 2018, and then stretch further to 2.1% in 2021 due to rising pension and healthcare costs.

Belgium’s debt to GDP ratio, the fifth highest in the euro zone last year, will only narrow to 101.2% in 2021 from 102.0% in 2018.

The bank said that a balanced budget - an often postponed government goal - would require savings of 11.1 billion euros ($12.5 billion). Doing so will be difficult as last month’s inconclusive election means it could be many months before a new government is formed.

The European Commission warned Belgium on Wednesday for not sufficiently reducing its debt, but stopped short of launching a disciplinary procedure.

For 2019, the central bank said that consumer spending was likely to accelerate due to increased purchasing power but that business investment would moderate. The contributions from net trade would be just 0.1 percentage point in 2019 and become negative in 2020 and 2021.

Purchasing power would rise by 3.5% in the 2019-2021 period, principally due to higher wages. The bank said the unemployment rate would be 5.7% throughout the period, down from 6.0% in 2018. ($1 = 0.8876 euros) (Reporting by Philip Blenkinsop)

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