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Belgium: Structural measures needed

Activity is projected to contract slightly and, thereafter, growth may remain below potential well into 2010, before rebounding on the back of easier monetary conditions, renewed growth in real incomes and a recovery in world trade. As a result, unemployment will increase over the projection period. Headline inflation should decline with the fall in energy and food prices, although core inflation should show more persistence.
The automatic stabilisers should be allowed to work fully during the downswing, but securing fiscal sustainability over the longer term will at some point require longer-term structural measures to achieve expenditure restraint at all levels of government. Abolishing the automatic wage indexation would allow for a more rapid decline in core inflation.