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The Belgian economy faces a second year of near zero growth, hampered by a loss of competitive edge and structural problems as the government cuts back spending, the International Monetary Fund said Wednesday.
Belgium is likely to eke out growth of 0.2 percent this year and just over 1.0 percent in 2014, the IMF said in a regular review, warning that even a gradual improvement in external conditions might not help much.
Belgium has fallen behind neighbours Germany, France and the Netherlands in terms of export performance as its labour costs have grown faster than theirs' and productivity slipped, it said.
It said that while the financial sector "has been transformed and downsized in the aftermath of the financial crisis," notably with the winding up of Dexia, vulnerabilities remained.
"Combined with the fragile situation of public finances, these vulnerabilities could, in an adverse environment, undermine macroeconomic stability," it said.
Accordingly, the government should push ahead with further fiscal reforms before the next general elections, due in 2014.
Belgium expects to run a public deficit -- the shortfall of state revenue to spending -- of 2.15 percent of Gross Domestic Product this year, below the EU 3.0 percent ceiling but requiring the government to find savings of some 2.5 billion euros.
Reports this week said the deficit target might be eased to 2.4-2.6 percent so as to ease the immediate pain.
The accumulated public debt, however, is around 100 percent of GDP, way above the EU limit of 60 percent and on the IMF's danger line for what is sustainable over the longer term.
The IMF said that in "view of the significant risks created by the level of public debt," the government should aim to reduce the annual deficit to around 2.0 percent in 2014, so as to help put the debt burden "on a downward path."