Municipal elections and credit rating upgrade strengthen Portugal’s governing left

Fernando Medina and António Costa Fernando Medina and António Costa, October 2017 (Foto: Paulo Vaz Henriques / Government of Portugal)

Support for Portugal’s anti-austerity government is growing, along with investor confidence, as the left’s economic policies bear fruit.

The current left-wing government in Portugal formed by the Socialist Party, the Left Bloc and the Communist Party, was given a popular endorsement at the municipal elections on 1 October. Aiming at the seats for new mayors in 308 city halls and 3,085 parishes throughout the country, the politicians promised affordable housing, better quality public transport, health and education.

In what the Spanish daily El País called a “bulldozing”, the Portuguese Socialists will now dominate a record 158 of the country’s 308 town halls. While keeping Lisbon, they also gained nine out of the 15 most populous cities.

Overall, the Socialist Party (SP) won 37% of the vote at national level. It was followed by the Social Democrats (PSD) with 16% of the vote. The Communist Party gained 9.7%, which put it well ahead of the Left Bloc on 3.2%. The biggest loser was the PSD, a centre-right opposition party, which was pushed down into third place in both Lisbon and Porto, prompting the resignation of its leader, former Prime Minister Pedro Passos Coelho. As for the PSD’s closest ally, the CDS-People’s Party, it scored an unusual 20.6% in Lisbon. Nonetheless, the real winner of the election was a robust abstention rate of 45%.

The Communists recorded their worst ever local election results, losing ten towns halls to the Socialists. The Left Bloc’s achievement was far from spectacular but it did manage to be represented in the capital.

As the Socialists are forming a government with both the Communists and the Left Bloc, António Costa, the prime minister and secretary-general of the Socialist Party, reassured continuity of good relations: “Our victory is not a defeat for any of our parliamentary partners,” he said, adding that “these results strengthen the SP, but also the parliamentary majority that has brought change.” The President of the Socialist Party Carlos César also guaranteed that the election outcome would not interfere in the good relations between the parties that support the government.

The municipal elections are considered an indicator of the popular view of the government’s performance: a significant portion of the population appears satisfied, to the detriment of the current opposition, with almost two years to go before the general election in 2019.

Improving economic outlook

On 15 September, the rating agency S&P raised its forecast for Portugal’s economic growth from BB+ to BBB-, thus upgrading the country’s rating to “investment-grade” status with a stable outlook. This is an additional booster for the ruling government, but the opposition has claimed recognition for its own contribution while in office.

It allows a much vaster array of investors to have Portuguese debt in their portfolios. It also allows private debt to benefit from better financing conditions, and this is very relevant for Portuguese banks,” Portuguese Finance Minister Mário Centeno told Bloomberg.

Until now, Portugal was hanging by the thread of a single investment-grade rating, granted by the Canadian DBRS, which has allowed the country to have access to the European Central Bank (ECB) bond-buying programme. With the additional favourable grading from S&P – one of the “Big Three” – Portugal is expected to attract more investment and reduce financing costs due to the resulting fall in interest rates to their lowest point since late 2015.

While not having changed their rating, the other two large rating companies, Fitch and Moody’s raised their outlook to “positive”, possibly indicating that they may follow S&P in the near future.

This is a very positive development, it shows that the economic recovery in Portugal is on the right track, that the budget deficit is on a downward trajectory, and this is recognised by rating agencies,” said Valdis Dombrovskis, the European Commission Vice-President for the euro.

Portugal’s efforts were also recognised by the Financial Times, which described the recovering country as a “rare beast” in the eurozone.

The S&P statement came while the Portuguese government was undergoing its 2018 budgetary talks. The financial guiding document for the coming year will be presented on 13 October for final voting on 28 November.

According to the winter forecast issued by the European Commission, Portugal’s economy grew by an estimated 1.3% in 2016 and real GDP growth is forecast to reach 1.6% in 2017 and 1.5% in 2018. Moreover, the deficit is projected to decrease to 2.0% of GDP in 2017, mainly due to a one-off operation (the recovery of a guarantee to Banco Popular Português worth 0.25% of GDP).

Additionally, the Portuguese government reported a €3.7 billion deficit in 2016, equivalent to 2% of GDP. Figures came well below a 4.4% gap in 2015 and a 2.5% deficit agreed with the European Union (EU). It is the lowest budget gap since the end of Portugal’s dictatorship in 1974, and below the 3% maximum allowed under EU rules. The improvement is largely due to lower capital expenditures and higher social security receipts.

Background

In March 2011, with interest rates spiking to unsustainable levels, Portugal received the €78bn bailout from the EU, the ECB and the International Monetary Fund, as well as bilateral loans, in exchange for a packet of reforms, including cuts in public spending and tax hikes.

By then, Greece and Ireland had already received their own austerity packages and, given the contradiction in all these economies and the fear of contagion, interest rates on Portuguese ten-year debt had risen further, reaching an alarming 17% in early 2012. By then, ten-year bonds yields (or interest rates) were downgraded to BBB-, otherwise known as junk.

Since taking office at the end of 2015, Prime Minister Costa has been expressing his intention to reverse some of the measures introduced during the bailout.

Banks and public debt still not satisfactory

Although Portugal exited the three-year international aid programme in 2014, opening the way for an improvement of the country’s economic performance, non-performing loans (NPL) are still a hurdle haunting its banking system.

Non-performing loans as a share of all bank loans in Portugal

Non-performing loans as a share of all bank loans in Portugal (Source: The Global Economy)

Last year, Portugal recorded a public debt equivalent to 130.4% of the country’s GDP – still a high value that requires some work, yet the forecast for 2017 is a public debt of 127.7%, according to Finance Minister Centeno.

The government debt to GDP ratio in Portugal averaged 76.1% from 1990 until 2016, reaching an all-time high of 130.6% in 2014 and a record low of 50.3% in 2000.

Many banks have high levels of NPL, but that does not mean that they are in crisis, only that their profitability is low because these loans do not generate income,” said the Managing Director of the European Mechanism of Stability Klaus Regling, who considers Portugal a successful case.

Nevertheless, the recapitalisation from the Caixa Geral de Depósitos (CGD) bank is likely to be added to public debt against people’s will, thus hampering Portugal’s ability to ease what is currently its biggest burden.

 

Marta Pacheco

Marta Pacheco studied Political Science and Media & Journalism at the Catholic University of Portugal (UCP). An independent researcher based in Brussels, she has been active in reporting EU and international affairs as a journalist contributor for media outlets in Brussels. Former Blue Book trainee in the European Commission and with a keen interest on politics and global affairs, Marta has been developing her skills and knowledge in the healthcare field, energy & environment and in the financial crisis.

Tagged:


Would you like to share your thoughts?

Your email address will not be published.

Legal note

1.    Terms and Conditions

2.    Privacy Policy

3.    Cookies Policy

 

1.    Terms and Conditions

Contact data for the web owner

This website has been created by KATOIKOS to promote their products and services.

– Name: Katoikos, S.L

– Co. tax Code:  B87123162

– Address:  Calle Campomanes 10, 28013  Madrid (SPAIN)

Registration details: Registered in the Commercial Register of Madrid.

Intellectual and Industrial Property

The various elements of this page, and website as a whole, are protected by Spanish legislation on intellectual and industrial property. The trademarks, trade names or logos appearing on this website are the property of the company, or, where appropriate, of third parties, and are protected by Trademarks Law, and of which KATOIKOS holds the legitimate license.

The information provided may not be used for commercial or public purposes, or modified. If the user downloads materials for personal and non-commercial use, warnings shall be kept about copyright and trademarks. To download and use the company logo that appears on the website, prior authorization is required.

Any unauthorised use of the images may violate copyright laws, trademark laws, the laws of privacy and publicity, and communications regulations and statutes.

Liability for Damage

KATOIKOS assumes no liability for damages you may suffer when browsing the web or in the use of computer applications that are part of it. Neither are warranties given as to the correction of malfunctions or updating of content.

Content you share with us

We may include features on this website that allow you to share your content with us and other users of the site. Please note that by sharing content it may become publicly accessible. You grant to Katoikos a worldwide, non-exclusive, transferable, royalty-free, perpetual, irrevocable right and license, without compensation to you:

 (a) to use, reproduce, distribute, adapt (including without limitation edit, modify, translate, and reformat), derive, transmit, display and perform, publicly or otherwise, such content, in any media now known or hereafter developed, for Kaotikos’ business purposes, and

 (b) to sublicense the foregoing rights, through multiple tiers, to the maximum extent permitted by applicable law. The foregoing licenses shall survive any termination of your use of the site, as further described below.

For all of the content you share through the site, you represent and warrant that you have all rights necessary for you to grant these licenses, and that such content, and your provision or creation thereof through the site, complies with all applicable laws, rules, and regulations and does not infringe or otherwise violate the copyright, trademark, trade secret, privacy or other intellectual property or other rights of any third party, and is furthermore free from viruses and other malware.

Rules of Conduct

When using this website and/or sharing content with us, you are prohibited from posting or transmitting :

1. any unlawful, threatening, defamatory, racist, obscene, scandalous, deceptive, false, fraudulent, inflammatory or profane material or any material that could constitute or encourage conduct that would be considered a criminal offence, give rise to civil liability, or otherwise violate any law.
2. Any virus, worm, Trojan horse, Easter egg, time bomb, spyware or other computer code, file, or program that is harmful or invasive or may or is intended to damage or hijack the operation of, or to monitor the use of, any hardware, software or equipment;
3. Any unsolicited or unauthorized advertising, promotional materials, “junk mail,” “spam,” “chain letter,” “pyramid scheme” or investment opportunity, or any other form of solicitation; and
4. Any material non-public information about a person or a company without the proper authorization to do so.

In addition, you will not:

1. Use this website for any fraudulent or unlawful purpose;
2. Interfere with or disrupt the operation of the website or the servers or networks used to make the website available; or violate any requirements, procedures, policies or regulations of such networks;
3. Access or use this website through any technology or means other than those expressly designated by us.
4. Restrict or inhibit any other person from using this website (including by hacking or defacing any portion of the website);
5. Except as expressly permitted by applicable law, modify, adapt, translate, reverse engineer, decompile or disassemble any portion of this website.
6. Remove any copyright, trademark or other proprietary rights notice from this website.
7. Frame or mirror any part of the webiste without our express prior written consent;
8. Create a database by systematically downloading and storing all or any content;
9. Use any robot, spider, site search/retrieval application or other manual or automatic device to retrieve, index, “scrape,” “data mine” or in any way reproduce or circumvent the navigational structure or presentation of this website, without our express prior written consent.

Links

Kaotikos  reserves the right to remove any messages or statements or cancel any links.

This site may include hyperlinks to other web sites that are not owned or controlled by Katoikos. Katoikos has no control over, and assumes no responsibility for, the content, privacy policies, security or practices of any third party websites.

Content may be hosted on YouTube or other social media. Those operate their own set of terms and conditions and privacy policy which are separate to the ones presented on this website. Katoikos no control over and assumes no responsibility for, the content, privacy policies, security or practices on YouTube or other social media.

 The right to terminate your access

Katoikos reserves the right to terminate your access to this website at any time if you do not comply with these Terms and Conditions or you infringe Kaotikos’ rights in the content provided on this website.

Governing Law

These Terms and Conditions are governed by and construed in accordance with the laws of Spain, without regard to its choice of law provisions.  You agree to the exclusive jurisdiction by the courts of Spain.

Changes to the Terms

Katoikos reserves the right to make changes to the Terms and Conditions from time to time. You acknowledge and agree that your continued access to or use of this website will constitute your acceptance of such changes.

2.    Privacy Policy

Kaotikos takes the protection of your personal data very seriously and collects, processes and uses your data only in accordance with the standards of the legal data protection regulations.

Data is collected, processed and used with technologyes of the provider web trends for marketing and optimisation purposes and also for sending news and information you may be interested in by any electronic services, such as email or SMS.

Our website user’s database is registered at the Spanish Agency of Data Protection. You have the rights of access, rectification, deletion and opposition, regulated in articles 14 to 16 of the LOPD.

For this, please write to:

KATOIKOS (Data Protection) Calle Campomanes 10, 28013, Madrid (SPAIN)

Or send an email to info@katoikos.eu. Your ID will be requested for these issues.

3.    Cookies Policy

This site, like many others, uses small files called cookies to help us customise your experience. Find out more about cookies and how you can control them.

This page contains information on what ‘cookies’ are, the cookies used by the Kaotikos’ website and how to switch cookies off in your browser.

If it does not provide the information you were looking for, or you have any further questions about the use of cookies on the Katoikos’s website, please email info@katoikos.eu.

What are ‘cookies’?

‘Cookies’ are small text files that are stored by the browser (for example, Internet Explorer or Safari) on your computer or mobile phone. They allow websites to store things like user preferences. You can think of cookies as providing a ‘memory’ for the website, so that it can recognise you when you come back and respond appropriately.

How does the Katoikos’s website use cookies?

A visit to a page on the Kaotikos’s website may generate the following type of cookies: Anonymous analytics cookies.

This website uses Google Analytics, a web analytics service provided by Google, Inc., a Delaware company whose main office is at 1600 Amphitheatre Parkway, Mountain View (California), CA 94043, USA (“Google”).

Google Analytics uses “cookies”, which are text files placed on your computer, to help the website analyze how users use the site. The information generated by the cookie about your use of the website (including your IP address) will be transmitted to and stored by Google on servers in the United States. Google will use this information on our behalf in order to track your use of the website, compiling reports on website activity and providing other services relating to website activity and internet usage. Google may also transfer this information to third parties where required to do so by law, or where such third parties process the information on Google’s behalf. Google will not associate your IP address with any other data held by Google.

Anonymous analytics cookies

Cookier Name Origin Aim End
__utma Google Analysis 2 years since set –up or update
__utmb Google Analysis 30 minutes since set –up or update
__utmc Google Analysis When browser sesión ends
_utmt Google Analysis 10 minutes since set –up or update
__utmz Google Analysis 6 months since set –up or update

How do I turn cookies off?

It is usually possible to stop your browser accepting cookies, or to stop it accepting cookies from a particular website. All modern browsers allow you to change your cookie settings. You can usually find these settings in the ‘options’ or ‘preferences’ menu of your browser. To understand these settings, the following links may be helpful, or you can use the ‘Help’ option in your browser for more details.

Cookie settings in Internet Explorer
Cookie settings in Firefox
Cookie settings in Chrome
Cookie settings in Safari web and iOS.

 

© 2017 Katoikos, all rights are reserved. Developed by eMutation | New Media

Become a
Being up to date with Europe only takes a few seconds.
Your information will never shared with a third party.
logo
subscriber!
Get our periodical newsletter sent to your inbox!
I have read and agreed the Privacy Policy (required)
Become a
Being up to date with Europe only takes a few seconds.
logo
subscriber!
Get our periodical newsletter sent to your inbox!
Your information will never shared with a third party.
I have read and agreed the Privacy Policy (required)