Portugal's exit of its three-year international bailout programme in May 2014 will fail to herald an era of stability for the financially beleaguered country. With the official completion of the programme reducing international pressure for structural reform, we see domestic opposition to budget consolidation and public sector restructuring increasingly on the rise. We have slightly revised up our forecast for Portuguese real GDP growth for 2014 on account of a stronger than expected Q114 growth reading. Nevertheless, we reiterate our downbeat outlook for Portugal's long-term growth prospects, and we expect the country to register below pre-2009 growth levels for the foreseeable future. Weaker-than-expected growth will undermine the government's revenue raising ability. We maintain that a precautionary credit line with the troika of international lenders is likely when the current financial programme ends in May 2014.
Major Forecast Changes
The above-consensus real GDP growth reading in Q114 in Portugal surprised both our and market expectations to the upside, and has prompted us to revise upwards our 2014 growth forecasts – to 0.5% from 0.4% previously. Nevertheless, we remain below Bloomberg economists' consensus of 0.8% and we retain a subdued outlook for Portuguese economic growth for the foreseeable future due to the country's limited prospects of substantially enhancing its export competitiveness.
Table Of Contents
Portugal Business Forecast Report Q3 2014 Executive Summary. 5 Core Views..5 Major Forecast Changes5 Key Risks To Outlook5 Chapter 1: Political Outlook. 7 SWOT Analysis.. 7 BMI Political Risk Ratings 7 Domestic Politics . 8 Mounting Domestic Risks To Fiscal Consolidation Efforts8 Domestic opposition to the government's efforts at consolidating the budget and implementing structural reform will grow following Portugal's exit of the three-year long bailout programme, which has decreased international pressure for reform. This will worsen Portugal's sovereign risk profile, which will jeopardise the country's ability to pay its debts in the medium term. TABLE: political overview..8 Chapter 2: Economic Outlook 11 SWOT Analysis 11 BMI Economic Risk Ratings... 11 Economic Activity... 12 Tepid Growth Ahead Despite A Strong Q11412 We have slightly revised up our forecast for Portuguese real GDP growth for 2014 on account of a stronger than expected Q114 growth reading. Nevertheless, we reiterate our downbeat outlook for Portugal's long-term growth prospects, and we expect the country to register below pre- 2009 growth levels for the foreseeable future. table: GDP By Expenditure...12 Balance Of Payments.. 14 Momentum Behind External Rebalancing To Wane...14 Although Portugal is poised to register current account surpluses over the next few years, the narrowing gap between import and export growth will limit the potential for further expansion of the surplus. As imports recover from the domestic demand slump over the past few years, the momentum behind the current account surplus expansion will wane. table: Balance Of Payments ..14 Regional Economic Outlook... 15 Assessing The Aftermath Of ECB Policy Action15 The European Central Bank (ECB) has delivered on nearly all of the policy options that we were expecting for the June 5 meeting. This is a step in the right direction for warding off the risk of deflation and will be positive for European equities and sovereign bonds. However, we warn - as we have done countless times during previous easing rounds - that the efficacy of ECB policy action will be limited absent structural reforms in the eurozone at the national and federal level. Chapter 3: 10-Year Forecast... 19 The Portuguese Economy To 2023. 19 Crisis An Opportunity To Improve Long-Term Growth.19 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 ...19 Chapter 4: Business Environment. 23 SWOT Analysis 23 BMI Business Environment Risk Ratings.. 23 Chapter 5: Key Sectors.. 25 Pharmaceuticals and Healthcare... 25 table: Pharmaceutical Sales, Historical Data And Forecasts26 table: Healthcare Expenditure Trends, Historical Data And Forecasts 27 table: Government Healthcare Expenditure Trends, Historical Data And Forecasts. 28 table: Private Healthcare Expenditure Trends, Historical Data And Forecasts... 28 Other Key Sectors... 29 Table: Telecoms Sector Key Indicators29 table: Infrastructure Sector Key Indicators...29 table: Autos Sector Key Indicators...29 Chapter 6: BMI Global Assumptions. 31 Global Outlook. 31 Emerging Market Deceleration31 Table: Global Assumptions.31 Table: Developed States, Real GDP GrowtH, %...32 Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %. 32 Table: Emerging Markets, Real GDP Growth, %..33