Fitch says Portugal is in a mess

ECONOMICS and financial ratings agency, Fitch, admitted last week that it was re-evaluating its opinion on Portugal’s economic outlook. It is considering lowering its initial stable economic evaluative estimate, which presently stands at AA. That is likely to be downgraded to AA- or even A.

Chris Pryce, the analyst responsible for Portugal, said he believed that all the major economics and business ratings agencies were thinking along the same lines, including Standard & Poors and Moody’s. This re-evaluation warning followed last week’s official presentation in parliament of the new Socialist government’s economic and political programme for the next four years under its Prime Minister José Sócrates.

Even so, Chris Pryce underlined that the government had been “in office for so little time that it isn’t yet possible to make a definitive analysis”.

The agency is currently preparing a more in-depth report on Portugal to be published in May following the visit of a team of analysts later this month. However, Portugal is currently being monitored by a number of economic agencies, including Standard & Poors, The Economist Intelligence Unit and Moody’s. The latter, for example, generally publishes a report on Portugal annually, but, unlike last year, when it published its yearly forecast in April, this year that is not going to happen, according to sources within the unit. However, an in-depth report will be issued before the summer.

Chris Pryce believes that Portugal has long been in need of a total economic overhaul after having registered disappointing


Apart from applauding changes in the Portuguese Employment Code (Código do Trabalho), Chris Pryce warns: “If this government doesn’t undertake a major liberalisation programme, Portugal will have to suffer the consequences.” These will include a further slowing down in growth and rising unemployment. However, in Spain during the 1990s, when successive governments reformed the economy, unemployment reached 12 per cent and as high as 20 per cent in some regions.

According to Fitch there are a number of worrying factors plaguing the Portuguese economy, financial and political system, including a GNP deficit higher than five per cent. The Portuguese public debt reached 61 per cent of the country’s GNP in 2004 and could increase this year.

• The highest rate for economic and business confidence is AAA, which the UK enjoys. Brazil, for example, is BBB. AA- or A is seen as adequate while the Bs are seen as risky. Anything below B is seen as an extremely bad investment bet. C.G.