Portugal “back to normal” says PM, while economic analysis talks of “vicious cycle”

“Portugal is back to normal”, prime minister António Costa told crowds during his October 5 address. A year after the elections, the country can “breathe a sigh of relief” as “social tranquility” has been returned.

A day later on the international scene, the only ratings agency that pegs the country’s debt above the dreaded ‘rubbish level’, is reported by the Financial Times as saying Portugal is “locked in a vicious cycle of very elevated public debt, low growth and interrupted economic reforms”.

In short, the country continues to have “huge structural problems”, says DBRS top economist Fergus McCormick – and as has been explained many times, if DBRS cuts its rating, Portugal could be jettisoned towards the scenario of a second bailout (click here).

For now, DBRS is “concerned with Portugal in the medium term” but not “in panic”, reports Observador, ahead of the Canadian ratings agency’s new evaluation, due to be reported on October 21.

But celebrating the anniversary of the implantation of Portugal’s republic, prime minister Costa alluded to little of this, concentrating more on the ‘gains’ of a Socialist executive.

A year ago, he told his audience, no one even believed the country would be celebrating October 5 as it was one of the national holidays ‘abolished’ by the former centre-right government, in the same of austerity.

“We weren’t going to have this Bank Holiday; the IRS surcharge looked impossible to eliminate, pensioners were not going to get the cuts to their pensions replaced, and they faced a new cut of 600 million euros to pensions; public sector workers were to continue working on reduced salaries; it looked impossible to lower the highest rates of IMI (rates tax) without failing to reduce the deficit”, but in the end, “all this was possible”, he said – stressing that “for the first time in 42 years, Portugal will have a deficit below 3%” by the end of this year.

Reporting on Costa’s speech, Radio Renascença concluded that the IMF doubts very much that the deficit will be below 3% this year, “or indeed the next”, and suggests that Portugal will in fact have “the worst budgetary deficit of the eurozone in 2021”.