CEIC News@lert: Portugal is Getting Back on Its Feet

June 18, 2014 - OVERVIEW - After the EUR 75 billion bailout initiated in 2011 by the European Commission, the European Central Bank and the International Monetary Fund (the troika) to help alleviate Portugal’s indebtedness, its economy is now slowly starting to get back on its feet. Despite the challenging economic environment in the European Union (EU), Portugal’s economy is returning to a stable growth path, which was confirmed by the country’s exit from the bailout programme in May 2014. From the beginning of 2011 until the third quarter of 2013, the Iberian country recorded negative real gross domestic product (GDP) year-on-year (YoY) growth rates for 11 consecutive quarters. This trend was finally reversed in the last quarter of 2013 when real GDP expanded by 1.5% YoY. A slight deceleration occurred in the first quarter of 2014, when the economy grew by 1.3% YoY, broadly in line with the 1.4% growth in the EU as a whole. The recovery is partially attributable to improved competitiveness from structural reforms boosting exports, but is also a function of reviving domestic demand biased toward a strong recovery in investment. The economy was still contracting on a quarterly basis in the first quarter of 2014, so a very low base exaggerated the improvement. A solid rise in export earnings has also helped to balance the current account. The quarterly growth rate of exports averaged 10.1% between the beginning of 2010 and the first quarter of 2014. Thus, the current account balance as a percentage of GDP reverted from a deficit of some 10% in 2010 to a small surplus of 0.5% in 2013, Portugal’s first current account surplus in two decades. Exports were one of the main drivers of the Portuguese economy. In 2013, exported goods and services accounted for 40.7% of GDP, compared to 28% in 2009. Further positive news can be gleaned from the government’s success in reducing the unemployment rate from its peak of 17.5% in March 2013 to 15.1% in the same month of the current year. While unemployment remains high, it is moving in the right direction. Through a series of austerity measures, Portugal managed to decrease its fiscal deficit in half – from 10.2% of GDP in 2009 to 4.9% in 2013. Moreover, the structure of the government debt was fundamentally changed. While short-term debt obligations peaked in the second quarter of 2011, reaching almost EUR 29 billion (15.5% of the total general government gross debt), in the first quarter of 2014, they shrunk to EUR 8 billion (just 3% of the total) as the long-term debt proportion expanded. The general government debt as a whole has nonetheless climbed to over EUR 220 billion, reaching 132.3% of nominal GDP, which makes Portugal the third most heavily indebted country in the euro area, after Greece and Italy. In the beginning of May, amid historically low bond yields in the eurozone, Portugal marked its return to the international bond markets, raising EUR 3 billion with its first 10-year bond sale since requesting the bailout. A few days later, two of the major credit rating agencies reacted positively to this development – Moody’s upgraded Portugal’s government bond rating to Ba2 from Ba3, while Standard & Poor’s raised the outlook of the country’s long-term debt from “negative” to “stable”. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
18th June 2014 CEIC News@lert: Portugal is Getting Back on Its Feet