Prime Minister Remains Upbeat about Portugal’s Outlook

The Portuguese Prime Minister Pedro Passos Coelho recently said that the government is managing to shrink its budget gap, and has successfully cut its spending in line with demands by global lenders. In spite of the country looking set to miss tough fiscal goals, it looks likely that EU and IMF inspectors will grant some relief as the country has been successful in sticking to a tough posterity program. However the prime minister hasn’t ruled out fine tuning the program.

Some economists think that lenders to Portugal could come up with a slightly easier target to meet this year combined with more spending cuts. As part of its austerity programme Portugal raised taxes, introduced deep structural reforms and reduced spending. While the budget deficit may have shrunk, this program has had the effect of driving up unemployment levels and depressing tax revenues.

Unemployment is currently at 15% of the country is still going through the deepest recession since the 70s. The current figures show the deficit was 6.9% of GDP for the first half of the year, while the year-end target is just 4.5%. Although Portugal has so far satisfied the EU troika these gains haven’t been without pain, as recent figures showed the economy shrank by 1.2%.

Portugal’s crisis is slightly different from other beleaguered European countries as it has come about as the result of stagnation during the last 10 years. The boom and bust cycle that brought down other countries bypassed Portugal. The current crisis means already reasonable house prices have declined steadily and are now attracting foreign buyers looking for a bargain.

Property prices are expected to contract for another year or so, and owners desperate to sell or accepting offers way below the asking price. Up until recently high-quality apartments in the Algarve and Lisbon had proved to be more resistant, but now even their prices are declining.

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