Portugal’seconomy on track
Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Lisbon during November 12 - 19 for the sixth quarterly review of Portugal’s economic program.
The program is broadly on track, despite stronger headwinds. With much already accomplished, strong commitment and perseverance need to be maintained as the program enters its second half. External and fiscal adjustment continues to advance, adequate capital and liquidity buffers have reduced financial stability risks, and structural reforms are proceeding apace. At the same time, rising unemployment, lower incomes, and uncertainty are weighing on confidence, while the recession in the euro area is beginning to bear on export dynamics. Given financing constraints and high debts, the program adequately balances the need to adjust, against the unavoidable costs of adjustment for economic activity and jobs. While downside risks to growth are significant, the program’s macroeconomic framework remains appropriate. Recent data have been mixed, although they continue to support the program scenario. After a 3 percent decline in 2012, real GDP in 2013 is projected to decline by 1 percent but should gradually return to positive quarterly growth rates during the year, with annual GDP in 2014 expected to grow by 0.8 percent. The external current account deficit is projected to improve further to below 1 percent of GDP in 2013. Fiscal consolidation efforts are in line with the revised deficit targets for 2012 and 2013. Revenue collection has been somewhat weaker than envisaged in recent months, but this was offset by tight spending execution. The government remains committed to achieving the deficit target of 5 percent of GDP in 2012 and a deficit of 4.5 percent of GDP in 2013. Going forward, the mission supports the authorities’ intention to rebalance the adjustment effort toward permanent reductions in expenditure. An expenditure review is underway. Results will be discussed during the seventh review, including measures to address potential implementation risks in 2013.