OECD Says Portuguese Economy May Get Worse before It Improves

According to the Organisation for Economic Corporation and Development, the Portuguese economy will contract much more than expected next year, and there is the risk that the country may spiral into more debt.

The OECD feels that Portugal will need to implement further budget cuts in order to meet the deficit targets required for its €78 billion bailout from the European Union and International Monitory Fund.

The OECD is predicting that the Portuguese economy will contract by 1.8% next year, double its forecast in July and more than the 1% contraction forecast by the Portuguese government. It has made this prediction as it is concerned that the effects of the current cuts could be larger than expected, and could initially create worsening economic conditions.

However the OECD does expect Portugal to return to growth late in 2013, as it is predicting that export growth will offset weak domestic demand.

Last year the Portuguese economy contracted by 1.7%, and is expected to contract by 3.1% this year. This means it will be Portugal’s worst recession since the country returned to democracy in 1974. Since Lisbon received the bailout funds last year it has raised taxes and implemented harsh spending cuts, but economists think the country could need more financial help.

This is because the tax hikes that will take effect next year could affect growth and private consumption which is being forecast to fall by as much as 3.5% in 2013, considerably more than the government for costs of 2.2%. Unemployment levels are already at record highs, and are expected to peak at 16.9% in 2013.

Portugal Does its Best to Entice Overseas Buyers

Portugal is trying its best to entice overseas buyers to invest in property and businesses in the country. At the beginning of next month it will introduce a new piece of legislation that will extend long-term visas to non-residents who are willing to bring capital into Portugal.

Apparently the new rules for eligibility will include the purchase of a property worth at least $500,000, or starting up a business that will create at least 30 jobs. Alternatively a visa will be available to those transferring at least $798,913 in capital.

It’s hoped these new regulations will help boost property sales, especially within the resorts and second-homes sectors. Figures from Global Property Guide show land values have fallen by 10.95% since the second quarter of last year, and the country still needs extensive austerity measures to try to restore its finances.

These austerity measures are to include higher income and property taxes, and are likely to be implemented sometime next year. Even though these new visa regulations may help a little, Portugal will still need to do a lot more to help it pull out of its third year of recession and into economic recovery.

It is likely that income taxes will increase from their current rate of 9.8% to 11.8%, although both of these rates still sound pretty low in comparison with many other countries around the world. Even so, Portugal’s largest union is to call a general strike for the middle of November. In spite of all this property in Portugal is looking like a pretty good bet, although anyone contemplating purchasing a home should take these higher taxes into consideration.