THE PORTUGUESE government will once again have to lower its economic growth forecast when it presents its budget proposals to parliament in October. The reason given is that world prices of crude oil have soared to 68 US dollars a barrel and could rise to 70 US dollars by next year.
According to sources within the Finance Ministry, Portugal’s economic activity indicators show that the country is going from stagnation to out-and-out recession. The only doubt is whether the economy will not grow at all or will enter into negative growth, which happened in 2003.
The government’s last revision suggested that the economy would grow by 0.8 per cent for 2005 and 1.4 per cent in 2006. However, the Bank of Portugal’s latest Economic Bulletin warns that growth could fall back to 0.5 per cent GNP.
A rise in the price of crude oil is reflected in an increase in imports and a corresponding decrease in exports, which become more expensive to manufacture and transport.
In the first five months of the year, Portugal’s fuel bill for crude rose 819 million euros compared with the same period last year.
A decrease in economic activity is yet another piece of bad news for Finance Minister, Teixeira dos Santos, which has showed a marked decline of one per cent translating into state losses of 400 million euros.
The less receipts, in terms of direct revenue and taxation, the government receives, the less likely it will be able to hold to the EU’s Growth and Stability Pact limits. The Portuguese State is already running at more than three per cent over the limit, with a GNP deficit at 6.2 per cent.
