Belgium: Strong Economic Data in the Face of Uncertainty

 |  About: iShares MSCI Belgium Capped ETF (EWK)
by: Tom Lydon

Belgium may be known for its beer, but there is a lot more to its economy than just drinks. Recently, there has been encouraging news, which may be good for its ETF. However, you will have to evaluate the good from the bad to decide if an investment is the right choice.

Belgium is a country with few natural resources, which makes its economy vulnerable to world markets, according to the CIA. In 2009, its economy contracted 3.1%, while unemployment rose slightly and the budget deficit worsened because of large-scale bailouts of financial companies.

On top of the problems caused by the financial mess of 2008, an aging population and rising social expenditures may force the government to implement unpopular austerity measures.

Despite its recent troubles, according to Daily Markets, Belgium’s GDP grew 0.7% sequentially from the second quarter, following a flat reading in the previous quarter. Year-over-year, GDP grew 2.2% in Q2, faster than Q1’s 1.6% year-over-year growth.

In addition, Global Property Guide reports that home prices rose strongly in Q1, after three quarters of economic growth. The average home price rose 5% year-over-year and 1.08% sequentially, which marks the fourth consecutive quarterly price increase. Apartments rose 5.9% year-over-year and villas rose 2.1% in the same time span.

However, political instability is a serious worry. “Premier Yves Leterme of Christian Democratic and Flemish Party (CD&V) resigned in April 2010 after Flemish party Open VLD had withdrawn from the government coalition. In the June elections, the New Flemish Alliance ((N-VA)) won most seats, but no party won a clear majority, so a caretaker government is in charge.

“Coalition-building is expected to last until autumn. Until then, new directions for the economy and the housing market remain in limbo.”

  • iShares MSCI Belgium (NYSEARCA:EWK): Down 6.3% in the last six months; most of the fund is allocated to the financial and consumer staples sectors

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Sumin Kim contributed to this article.

Disclosure: None