2013-10-24 17:02:09 - Fast Market Research recommends "Portugal Business Forecast Report Q4 2013" from Business Monitor International, now available
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 amongst 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.
We are forecasting a real GDP contraction of 3.0% in 2013, as the austerity-driven recession continues and the economy rebalances away from domestic consumption. We forecast the pace of contraction to abate in 2014 to 0.5%, but even that mainly reflects a continued deterioration in imports, rather than a tangible improvement in domestic demand.
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Weaker-than-expected growth will undermine the government's revenue raising ability. The government is likely to negotiate with the country's troika of international lenders less punishing terms of the rescue package at the next official bailout review. In addition, we do not rule out the possibility of another line of credit when the current financial programme ends in mid-2014.
Major Forecast Changes
We have revised upwards our forecast for 2014 real GDP growth - from -3.0% previously to -0.5%. Although full recovery is still elusive and private domestic demand will remain under duress, the pace of economic contraction is likely to abate, as the economy has likely already hit a trough.
Key Risk 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 2022. However, we would upgrade our forecasts upon evidence that the government's structural economic reform package is making headway.
Partial Table of Contents:
Major Forecast Changes
Key Risk To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Political Risk Analysis
Another Year Of Missed Fiscal Targets
- We expect Portugal's budget deficit to remain elevated, at 6.4% of GDP in 2013 and 5.4% in 2014 due to weak revenue growth and mounting public resistance to further spending cuts. As such, we expect the government to negotiate less punishing terms of the country's rescue package at the next bailout review by the troika of international lenders.
TABLE: DOMESTIC POLITICS
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Domestic Demand To Remain A Drag On Growth
- Although the Portuguese economy registered positive growth in Q213 for the first time in the past three years, we forecast a full-year contraction of 3.0% in 2013 and of 0.5% in 2014. The economy continues to undergo a structural adjustment process away from domestic demand towards net exports, with weak import growth, rather than improved export competitiveness, flattering the headline growth figure.
TABLE: GDP BY EXPENDITURE, REAL GROWTH %
Balance of Payments
Ongoing Unwinding Of External Imbalances
- The rebalancing of Portugal's external accounts continues as domestic demand remains under duress amidst ongoing fiscal consolidation efforts, underpinning our forecast for a current account surplus of 0.3% in 2013 and 1.8% in 2014. Moreover, by shifting into surplus, the current account will start chipping away at the external debt, having added a significant chunk during the credit boom years.
TABLE: CURRENT ACCOUNT, % OF GDP
Beware Of Volatility Blowback
- Despite efforts by the European Central Bank to quash volatility in the eurozone by eradicating left tail risk (there is now surprisingly little talk of a euro breakup) we warn of the possibility of a major blowback in 2014. We keep coming back to same fundamental constraint facing the euro area: a lack of serious structural reform of the currency union. Progress on a combined banking, fiscal and political union, as well as efforts to bolster internal and external competitiveness, has been minimal and suggests that the ECBs anaesthetic could abruptly wear off.
Chapter 3: 10-Year Forecast
The Portuguese Economy To 2022
Crisis An Opportunity To Improve Long-Term Growth
- The near-term outlook for Portugal will be shaped heavily by the measures its government must undertake to corral the fiscal deficit and bring national debt levels under control. However, beyond the immediate term, Portugal will have to grapple with improving its growth prospects if it is to escape from the debt trap. We are forecasting an economy more reliant on external demand and investment and less on private consumption over the coming decade, but the future will depend in large part on the government's reform programme bearing fruit.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Business Environment
BMI Business Environment Risk Ratings
Chapter 5:Key Sectors
TABLE: PRESCRIPTION DRUG MARKET INDICATORS, HISTORICAL DATA AND FORECASTS
Full Table of Contents is available at:
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