Portugal: Growth remains decent, but political risks remain
Economic activity in Portugal is expected to slow in the coming months, but the pace is still decent. However, political unrest could affect growth negatively. For 2019, we believe the economy will grow by 1.6% and 1.4% in 2020
Portugal's quarterly growth rate in the first quarter of 2019 came in at 0.5%, compared to 0.4% in 4Q18 and 0.3% in 3Q18. This is a slight acceleration, but we see it as a temporary phenomenon. In the first quarter of 2019, investment grew by 10.4% quarter-on-quarter, mainly due to construction and investment in machinery and equipment which is unsustainable in the long-run.
Moreover, we think consumption growth will also be softer, as we've already seen in the first quarter of 2019. Indeed a weaker labour market limits consumption growth. Unemployment has stopped its downward trend since September 2018 and even edged 0.1 percentage point higher in April to 6.7%, while employment growth keeps edging lower.
The unemployment rate has stopped falling
There is also some political unrest that could hurt sentiment. Recently, fuel-tanker drivers went on a strike for better pay and working conditions and unrest is also growing with public sector workers in the health and education sector as they also want higher wages. Further strikes over the summer could harm the tourism sector.
Further political unrest could hurt sentiment
All these problems undermine the reputation of the Socialist minority government, led by Antonio Costa and backed by the Left Block, the Portuguese Communists party and the Greens. Opinion polls for the October 2019 general elections show that the Socialists would still be the largest party, but could fall short of a majority.
On fiscal policy, the government plans a deficit of 0.2% of GDP in 2019 and a surplus of 0.3% in 2020. Government debt will also continue its downward trend. In March, the rating agency S&P upgraded the ratings from BBB- with a positive outlook to BBB with a stable outlook while Fitch, another rating agency kept its rating fixed at BBB, but upgraded its outlook from stable to positive.
Markets have been interpreting all of this quite positively as the perceived riskiness of Portuguese government bonds reaches new lows.
This article is taken from the Eurozone Quarterly, which you can find here
Spread with the 10-year German government bond edges lower
Download
Download article
26 June 2019
ING’s Eurozone Quarterly: Avoiding a more serious slowdown This bundle contains {bundle_entries}{/bundle_entries} articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).