Hope for Portugal’s Economy
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During a television interview held last Wednesday, Prime Minister Pedro Passos Coelho expressed that the country will not require more austerity measures to survive the present debt crisis. Coelho’s confident statement was made in light of the comments made by Finance Minister Vitor Gaspar that Portugal has now reached a crucial point – the halfway mark - in its economic recovery plan.
In turn, Gaspar’s comments came as a result of Portugal’s impressive market run with its best economic performance in the 3-year period since 2009. Leading analysts then concluded that Portugal’s economic crisis in terms of its burgeoning debt is starting to ease up.
On Thursday, market data revealed that the country’s two-year notes increased in value for the tenth consecutive day, which represented the longest sequence of gains over the 3-year period from 2009 to 2012. Market analysts explain that such a favorable run was due to the perception that the debt crisis is finally being resolved, a perception shared by most investors in the Eurozone.
Such is Coelho’s confidence in the recent market development that he has also predicted that during the year’s final quarter, a favorable turnaround of the economy’s negative cycle will be experienced. The year 2013 will see a consolidation of the economic gains made in the previous year. He further added that 2013 will set the foundation for 2014’s sustained economic growth.
Coelho, however, forecasted that Portugal will still be in the grips of the economic recession for most of 2013. Because of the country’s recent economic performance, fortunately, there will be no further austerity measures but he still emphasized that “no responsible leader could guarantee an end to austerity”.
During said interview, which came on the eve of corrective budget’s release, Coelho also dismissed the idea that the country will need either a second bailout from the Internal Monetary Fund (IMF) and the European Union (EU) or a longer period for a successful return to the markets. Either one, he says, will represent “an enormous failure”.
He further cautioned that, “We are in a very difficult situation which has not yet been surpassed. The national emergency will last for practically the whole of this year. We cannot lower our arms for even one second if we want to ensure we reach all our objectives.”
It appears that the Prime Minister is hoping for the best but still preparing for the worst that can happen where the debt crisis and economic recession are concerned. Cautious optimism is in the air, indeed.
On a related note, both domestic and international markets in Portugal have experienced upswings in activity, thus, underlying the cautious optimism expressed by the Portuguese government. These favorable turn of events ended the economy’s downward spiral, which started in 2009.
Coelho’s cautious optimism is shared by other experts in the industry. In an interview for Bloomberg, Ciaran O’Hagan of the Societe Generale SA in Paris reinforced Lisbon’s attitude toward the debt crisis in particular and the economy in general.
O’Hagan asserted that, “Portugal remains the most attractive of the high-yielding markets.”
She also added that, “The Portuguese market has been outperforming because there’s no major news elsewhere in the euro area. It’s afforded a respite, allowing Portuguese spreads to narrow.”
The Office of National Statistics also reinforced Coelho’s and O’Hagan’s statements. According to the March 2012 figures, consumer confidence and business confidence “has bucked the negative trend which has been observed since the end of 2009.”
But there will always be rain on Portugal’s parade and it comes in the form of American rating agencies.
On Thursday, Moody’s downgraded six banks in Portugal, namely, Millennium BCP, Caixa Geral de Depósitos, BES, BPI and Banif – all dropping one rating – and Santander Totta, which dropped from Baa2 to Ba1 – a total of two positions.
These downgrades were attributed to the expected deterioration of the banking institutions’ quality of their domestic assets and their overall profitability. Portugal’s unfavorable economic outlook coupled with the additional risks borne of the banks’ substantial stakes in government-related debts was also cited as reasons for the downgrade.
Yes, there is hope for Portugal’s economy but the attitude remains cautious and rightly so.
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Published in: Portuguese Life