Germany and France both reported increases in growth and the numbers have convinced some analysts that Europe’s economy is recovering, perhaps even faster than that of the United States’, reports Charlie Parker for Citywire.

There are some risks, though:

• Some economists think, however, that the improved numbers may not be a show of overall economic strength but rather a fall in imports as exports remain the same, which would come up as a stronger net trade.

• The unemployment rates in Germany and France may also be misleading because of the larger public sector. It is seen that the fall in production in Europe did not reflect an equal fall in unemployment. The economies could suffer later from the excess weight.

• The European Central Bank has cut its benchmark interest rate to a record 1% low and begun a $86 billion program of buying assets, writes Simon Kennedy for Bloomberg. Officials are regarding the economic recovery with caution and won’t be reversing their policies any time soon.

• The ECB projected that the European economy may contract 4.6% this year and contract 0.3% in 2010. Deutsche Bank estimates a 1.3% contraction next year and UBS AG predicts 2.1%.

One way to access the European market is through the PowerShares FTSE RAFI Europe (PEF) ETF. PEF, currently up 42% year-to-date, tracks the performance of the largest European equities in the FTSE RAFI Europe Index, which normally invest 90% of its total assets in securities that comprise the Index and ADRs based on securities in the Index, as stated by InvescoPowerShares. The ETF has 526 holdings with an expense ratio of 0.75%.

• Country allocations: United Kingdom 30.6%, France 14.7%, Germany 13.3%, Italy 7.6%, Switzerland 6.4%, Netherlands 5.8%, Spain 5.3%, Sweden 4.0%, Ireland 2.6%, Belgium 2.5%

For more information on Europe, visit our Europe category.

Max Chen contributed to this article.

Meanwhile, forecasts for Belgium’s economy are claiming a 4% decline this year, according to the Organization for Economic Cooperation and Development. The projections are more pessimistic than the actual country’s are – Belgium sees a contraction next year of 0.5%, says Philip Blenkinsop for Reuters.

Belgium has a heavy dependence on world trade; exports make up more than two-thirds of the country’s gross national product. Countries that rely on trade have been hit especially hard in the recession.

About $26.6 billion has been sold off as European bonds declined, sending the German bond, Europe’s benchmark security, up from a one-month low as a report showed Europe’s manufacturing and service industries shrank in June at the slowest pace in nine months. Despite this, governments are still issuing lots of debt and high price levels are still evident, reports Anna Rascouet for Bloomberg.

Germany will not be turning to investment banks to sell their regular debt this year. Belgium is continuing to issue notes, as their system is “winning” and everyone wants to buy German bonds. German bonds returned 0.6 % this month, compared with a 1% loss for U.S. debt, according to Merrill Lynch.

• iShares MSCI Belgium Index (EWK): up 17.1% year-to-date

• SPDR Barclays Capital International Treasury Bonds (BWX): up 0.3% year-to-date; Belgium is 4.6% of assets

For more stories on Belgium, visit our Belgium category.

Overall sentiment in the country does not reflect this news, however, as consumer sentiment remains quite positive. According to Forbes, Belgium’s consumer confidence index rose in April because the economic data that was not as dire as once thought.

The index is based on a monthly telephone survey of more than 1,000 consumers on their outlook for the country’s job and economic prospects as well as their own financial situation and ability to save money. Belgium locals are split upon whether the country will do better or worse next year.

• iShares MSCI Belgium Investable Market Index (EWK): up 14.2% year-to-date

The International Monetary Fund (IMF) calculates Belgium’s economy to contract 2.5% this year and recover a small 0.3% next year, according to Forbes. The IMF advised a structural adjustment of 0.7% of GDP once the current crisis abates.

The government’s planned economic stimulus package, although smaller than previously planned, will cause the public-sector deficit to grow. IMF estimates the deficit will rise to 3.4% of GDP in 2009 and 4.5% in 2010. Belgium already spent $25 billion bailing out its financial sector, and the government may not be able to provide another fiscal stimulus.

Belgium Central Bank announced the consumer confidence index was stable in March with signs of less pessimism toward economy and labor market prospects, as stated by Forbes. But consumer sentiments worsened in regard to household finances and the ability to save.

The European Commission is allowing Belgium to support Flemish companies by setting up subsidized guarantees for investment and working capital loans, reports Carolyn Henson for The Wall Street Journal.

• iShares Belgium Investable Market Index (EWK): up 4.7% in the last month; down 8% year-to-date

Max Chen contributed to this article.

The good news is that inflation forecasts dropped to 0.5% in 2009, down from 4.5% last year, but it’s really only because of the steep drop in oil prices. And that’s where the good news ends. Like most of the world, gloom is on tap in economic forecasts for Belgium.

The Belgian central bank slashed its national economic forecast from a 0.2% decline to a contraction of 1.9% for 2009, according to Forbes. Governor Guy Quaden has acknowledged the lower GDP estimates is a sign of a “serious recession.”

The Belgian economy is one of the world’s most trade -ensitive, and it makes up less than 4% of the Eurozone.

This recession is especially noteworthy because of its speed of deterioration, according to AFP. Exports dropped by 1% and potential investors may be deterred from the kingdom’s companies. Consumer spending may also drop. It is estimated that some 57,000 jobs could be lost this year.

• iShares Belgium Investable Market Index (EWK): down 5.2% in the last month

As the U.S. economy slumps further, banks are lending less, leading to consumers spending less, hurting imports and exports, and so on. Weak corporate earnings reports are fueling the fire and concerns that this economic slump might not be quick or short.

Some of the hardest-hit funds and economies these days still have billions in assets still residing in them. While many investors have shifted to the sidelines or to traditional safe-havens, there are still many others hanging on. “I can’t sell now,” is a popular sentiment, and we wonder how many of those assets are from investors in that predicament.

What to do?

If you’re a buy-and-hold investor, if it would make you feel comfortable to sell one-third of your portfolio before suffering further losses, consider it. In our trend-following report, we discuss what to do if you’ve missed your sell point (we use 8% off the recent high or below the 200-day moving average):

What should you do if you missed the 8% drop, and you’re down much further than that? Missing the sell point creates the conundrum above. That’s when I recommend the following:

Sell 1/3 of your equity holdings and focus on the most aggressive positions—those that might be down 20-30% and trading 10-15% below their 200-day moving averages.

If those holdings decline by another 5-7%, consider selling another third.

Keep an eye on the 200-day average of these positions. As the trend lines continue to decline, there will be an excellent buying opportunity in the future when the markets eventually rebound.

Many funds are getting badly beaten up in these markets, including:

• SPDR S&P Emerging Europe (GUR): 68.8% off Dec. 10, 2007, high; $82 million assets
• iShares MSCI Austria (EWO): 66.6% off June 4, 2007, high; $185 million assets
• iShares MSCI Belgium (EWK): 69.6% off July 12, 2007, high; $79 million assets
• iShares MSCI South Korea (EWY): 66.8% off Oct. 31, 2007, high; $1.9 billion assets
• iShares FTSE/Xinhua China 25 (FXI): 66.4% off Oct. 31, 2007, high; $6.1 billion assets
• iShares MSCI Brazil (EWZ): 67.3% off May 20, 2008, high; $5.7 billion assets
• Market Vectors Russia (RSX): 75.8% off May 19, 2008, high; $862 million assets
• iPath MSCI India (INP): 73.4% off Jan. 14, 2008, high; $535 million assets

Seasonally adjusted gross domestic product (GDP) rose a scant 0.2%, mostly on weakness in the manufacturing and construction sectors, report Philip Blankenship and Antonia Van De Velde for Thomson Financial News. Economic activity rests upon their domestic demand while external demand did not add anything to their expansion.

Meanwhile, the Dutch government is threatening to rise duties on beer, during an especially sensitive time, reports Louise Ireland for Forbes. The Dutch already raised duties on wine 16%, but the question remains, “Why would the Dutch hit their own product?” Raising duties on beer in the Netherlands could send consumers to neighboring Belgium and Germany for their pilsners.

The Netherlands and Germany are Europe’s No. 1 beer exporters, and half of all beer in the Netherlands is consumed locally, making it especially sensitive to taxation.

The president of the European Central Bank said this weekend that the economic squeeze in Europe has hit “rock bottom.” He expects a gradual revival throughout 2009, reports AFP.

Related ETFs:

• iShares Belgium Investable Market Index (EWK), down 30% year-to-date
• NETS Belgium 20 Index (BRU), down 11.5% since June 9 inception
• NETS AEX Index Fund (AEX), down 18.6% since June 9 inception
• iShares MSCI Netherlands Index (EWN), down 21.2% year-to-date

Belgium is a country made up of two rather distinct regions: Dutch-speaking Flanders in the North and French-speaking Wallonia in the South. However, the capital city of Brussels is essentially an island of French-speaking Belgians in a sea of Dutch-speakers.

Despite the stalemate that exists between French and Dutch-speaking Belgians, a break up of this nation is seen as being unlikely, as reported by John Miller for the Wall Street Journal. Although this issue can be seen as some sort of a social dilemma, many of Belgium’s problems stem from the economy. Belgium has a Flemish majority of roughly six million and they have seen between $3 billion and $6 billion of tax money per year transferred south to Wallonia.

Flemish political parties also want each region to run its own health care, unemployment insurance, courts and other functions if the country was to split. However, analysts say a decision to split up is unlikely being that repercussions could include economic depression, or assassination. Along with potential economic depression comes the dispute over the capital city and who would take on the $400 billion national debt, which is guaranteed to surface if the country does indeed decide to divide.

Even with the recent acquisition of Anheuser Busch buy Belgium-based InBev, questions have appeared despite what was thought to be a more than fair buyout. Mexico’s Modelo is still analyzing the deal being that Anheuser-Busch had a non-controlling 50% stake in Modelo, reports Anthony Harrup for Dow Jones. Although Modelo executives have an overall positive outlook on their future, they do have final say in who will be its minor partner. If the AB-Modelo partnership no longer exists, perhaps the political state in Belgium may have had an influence in the decision.

Some Belgium ETFs include:

• iShares MSCI Belgium Index (EWK): down 22.8% for the past month; InBev is 7.8%
• NETS BEL 20 Index (BRU), launched on June 9; InBev is 6.7%

If the deal takes place, will the Clydesdales fly to Belgium first-class, or is coach acceptable?

If the two giants can come to terms, it would end the hostilities between them and create the world’s largest brewer, report Andrew Ross Sorkin and Michael J. de la Merced for The New York Times. InBev, maker of Stella Artois, Beck’s and Bass, would join Anheuser, maker of Budweiser, in major distribution channels worldwide, and has offered the America beer maker $70 per share, up from the original offer of $65. A decision could come as soon as Monday.

Anheuser could suffer political backlash if they decide to join, causing supporters of the independent company to protest. Shares of InBev were up more than 2% after the New York Times reported the companies were in negotiation.

ETFs that might be raising a glass to the union:

• PowerShares Dynamic Food and Beverage (PBJ): down 9.2% year-to-date; 4.9% Anhueser Busch
• iShares MSCI Belgium Index (EWK): down 20.6% year-to-date; 7.7% InBev

Nearly two weeks ago, Belgium’s InBev made an unsolicited $46.35 billion acquisition offer to iconic American brewer Anheuser-Busch (BUD). The Budweiser maker is prepared to reject the bid, which could be setting the stage for a hostile takeover battle, report David Kesmodel, Matthew Karnitschnig and Dana Cimilluca for the Wall Street Journal.

If Anheuser says no, InBev might take the offer directly to the shareholders, but it hasn’t decided whether to take that route. If it does, it might go through, as many investors have said they support the bid. Anheuser is exploring steps to try and make its shares too expensive for InBev to acquire, but InBev has a carefully crafted battle plan, so it may not be deterred.

Belgium-based lender Fortis announced that it plans to raise $12.5 billion after scrapping its interim dividend, reports Simon Kennedy for MarketWatch. Standard & Poor’s warned that it would downgrade shares of the company over concerns about risk and potential earnings volatility.
 

InBev is 7.7% of the holdings in the iShares MSCI Belgium Index (EWK). Fortis is its largest component, with 25.1% of the assets.