Country Risk Service Portugal 3rd Quarter
The Economist Intelligence Unit, July 2012, Pages: 16
Portugal's fiscal and economic adjustment programme, supported by the EU and the IMF, will keep the economy in recession for much of 2012-13. The coalition of the Social Democratic Party (PSD) and the smaller Popular Party (CDS-PP) should hold together for most of its term, but the negative social and economic impact of the fiscal and economic reforms will pose a challenge to government stability in the medium term. Portugal's future in the euro zone would be called into doubt if Greece were to exit the euro (although this is not the Economist Intelligence Unit's central forecast). The target for a budget deficit of 4.5% of GDP in 2012 is likely to be missed in the absence of further austerity measures. Putting Portugal's public finances on a sustainable footing over the medium term is likely to require restructuring of public debt. Real GDP is forecast to contract by 2-3% per year in 2012-13, stagnate in 2014 and recover slowly thereafter. Inflation should decline from a peak of 3.6% in 2011, but additional increases in indirect taxes could drive it up again. The current-account balance should turn to a mild surplus by 2015-16.
With budget execution veering off track and the economy in a deep recession, pressure will build for the government to seek an extension to the deficit reduction targets agreed with Portugal's international creditors.
The budget deficit stood at EUR3.2bn in the first quarter of 2012, marginally higher than EUR3.1bn a year earlier. The deficit rose to 7.9% of GDP, from 7.5% of GDP a year earlier. Although improvements are expected in subsequent quarters as savings measures kick in, the widening deficit confirms our view that the government will miss its deficit target this year.
Country Risk Service Portugal 3rd Quarter
Portugal at a glance: 2012-16
OVERVIEW
Key changes from last month
Political outlook
Economic policy outlook
Economic forecast
Risk assessment
Sovereign risk
Currency risk
Banking sector risk
Political risk
Economic structure risk
Rating definitions
Sovereign risk
Currency risk
Banking sector risk
Political risk
Economic structure risk
Overall country risk
Central scenario for 2012-16: Political stability
Central scenario for 2012-16: Election watch
Central scenario for 2012-16: International relations
Central scenario for 2012-16: Policy trends
Central scenario for 2012-16: Fiscal policy
Central scenario for 2012-16: Monetary policy
Central scenario for 2012-16: Economic growth
Central scenario for 2012-16: Inflation
Central scenario for 2012-16: Exchange rates
Central scenario for 2012-16: External sector
Key risk indicators
Ratings summary
Quarterly indicators
International assumptions summary
Economic structure
Public finances
Exchange rates, interest rates and prices
Financial sector
Current account
Foreign payment and liquidity indicators
External trade
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