German analysts warn Portugal could be “at risk” after October 6 elections

German financial analysts warn Portugal could be “at risk” after the October 6 elections.

In a note to investors, economists at Commerzbank accept that PS Socialists will be making a comeback – albeit without an absolute majority – but suggest “things may not be as good as the Socialist propaganda claims”.

The country “could face certain problems” if prime minister António Costa “follows the same economic policies”.

Said the note: “When one looks closely at Portugal’s economy, it’s not quite as positive as it seems at first glance. There are considerable risks accumulating in the long-term”.

Said Commerzbank’s head of economic research Ralph Solveen, the reduction in the budget deficit “has been mainly due to the good economic climate and significant drop in debt interest expenses” due to the stimulus policy followed by the European Central Bank “and the fact that Portugal was able to recover quality financial ratings from ratings agencies in this context”.

But when one looks at the structural primary balance “that is, the balance of accounts excluding debt interest payments and cyclical factors, it has remained the same”.

What worries Commerzbank “even more”, say reports, “is that Portugal’s competitiveness is once again under pressure” with unit labour costs rising more sharply since 2016 “than the rest of the Eurozone”.

If the trend towards higher labour costs continues, “this would put pressure on the industrial sector in particular, which in the long term can put heavy strain on the economy as a whole”, said Solveen.

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