2013-01-15 14:01:18 - Portugal Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

We maintain our view that the centre-right coalition government in Portugal will hold onto its mandate in the face of high public discontent and increasing unease with official austerity measures among members of the coalition. This is predicated on a strong parliamentary majority and a lack of credible alternatives for the electorate given it was the opposition Socialist Party that first requested the bailout.

The outlook for Portugal´s economy remains dire with fiscal austerity measures mandated by the Troika set to keep the economy in recession for a third consecutive year in 2013. We forecast real GDP contraction of 1.9% in 2013 following a contraction equivalent to 3.4% in 2012. We maintain that net exports will be the only source of

 

 

positive growth in the coming two years, but a potential shift of focus at the eurozone level in favour of growth over austerity, or looser demands from creditors, represents upside risks to our forecasts.

Portugal´s fiscal deficit will miss the Troika targets revised back in September. We maintain our forecast for fiscal gaps equivalent to 5.3% of GDP in 2012 and 4.7% in 2013, above the targets of 5.0% and 4.5% respectively. Weaker than expected growth will undermine the government´s revenue raising ability. Although the government is likely to implement further spending cuts, we continue to expect Portugal to restructure its debt in the coming years.

Forecast Changes No major forecast changes since last quarterly report.

Risks To Outlook

Downside Risks To Growth Forecast: The biggest immediate danger for Portugal is a deepening of the sovereign debt crisis, either for its own government or in another eurozone country, which would depress domestic confidence and external demand.

Upside Risks To Economic Outlook: At present, we do not envisage long-term real GDP growth rising much above 1.7% in the latter part of our long-term forecasts to 2021. However, we would upgrade our forecasts upon evidence that the government´s structural economic reform package is making headway.

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