Portugal Still Facing Challenges, but It’s Not All Bad News

Portugal still faces considerable challenges in meeting its current bailout program. It is struggling with high unemployment, and must implement steep increases in taxes to help increase its revenue. Not surprisingly these changes have been very unpopular with its citizens, but the country has been given more time to decrease its deficit and to get its economy back on track.

This year the IMF is forecasting the Portuguese economy will shrink by 3%, and by 1% next year. Its current target is to narrow the deficit for GDP to 4.5% in 2013, and to less than 3% in 2014 which is 12 months later than originally planned. It is anticipated the government debt will now peak at 124% of GDP in 2014, compared with a pre-crisis level of just 68.4% in 2007.

While this isn’t exactly great, there is better news on the horizon. Exports increased by 9.6% between January and August, while imports decreased by 4.3%. Exports have also increased to non-European Union countries and this should help prevent the crisis becoming even worse. The current account deficit used to be more than 10% of GDP, but is now close to becoming balanced.

Portugal is in a far better position than other countries such as Greece, and most importantly has the support of its lenders. It has already taken important steps towards returning to market financing, and much of the debt is now held domestically. It has swapped bonds that matured next year for debt in 2015, and experts think the chances of the country needing to restructure are quite remote.

 

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