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Belgium, the sixth-largest economy in the eurozone and home of Anheuser-Busch InBev (NYSE: BUD) has made a faster economic recovery than economists predicted. If Belgium stays on track, its ETF could soon become more appealing for investors nosing around Europe.

Last week, the National Bank of Belgium in Brussels revealed that the business confidence index rose to minus 3.6 from minus 7, about 48% better than what economists had predicted. This is the highest the index has been since August 2008.

Because of rising world trade, the Federal Planning Bureau has readjusted 2010 economic growth projections to 1.4%, up from an October estimate of 0.4%.

Like most developed markets, though, Belgium still has issues to face down or simply avoid:

  • The International Monetary Fund (IMF) warns that Belgium’s short-term outlook remains cloudy due to rising unemployment, sluggish domestic and external demand, and growing public debt. Thus, the IMF says that it is important for the Belgian government to keep a vigilant eye on withdrawing liquidity to banks in order to avoid a credit squeeze, which would slow the economic recovery.
  • In addition, Belgian banks remain highly exposed to markets with increasing non-performing loans, reports Lesley Wroughton of Reuters. Having conducted a cross-country analysis, the IMF estimates that there is a high chance of a Belgian creditless recovery, and adds that “the risk of a creditless recovery is a cause for concern although this is mitigated by the public support and ongoing bank restructuring.”
  • The tentative nature of Belgium’s economic recovery can be seen in Anheuser-Busch InBev’s recent business performance. Although 2009 Q4 adjusted earnings per share jumped to 55 cents from 44 cents in 2008, there was only a 0.7% increase in sales volumes, reports Steve Goldstein for MarketWatch.

iShares MSCI Belgium Investable Market Index Fund (NYSEArca: EWK) Anheuser Busch InBev is 24% of the fund. Caution: If Belgium’s financial markets continue to struggle, this fund could get weighed down, since it has 31% exposure to the sector.

p> Sumin Kim contributed to this article.

Source: Belgium ETF: What's Good, What's Not