Portugal’s external deficit falls to 6.3% of annual GDP

Signs that Portugal’s export economy, boosted by sales of transactional goods abroad, was beginning to recover from the recession emerged over the weekend.

The country’s external balance of payments deficit fell to 6.3% of annual GDP – the lowest level since 2004.

At the same time, Portugal’s economy grew by 1.4% in the third quarter of the year while overall the nation’s GDP managed a modest increase of 0.3% on the back of foreign trade.

With overall internal and Foreign Direct Investment levels at historically low levels, the expansion of exports was a welcome tonic for a country and Government in crisis.

The results were reflected in an abrupt reduction in Portugal’s balance of payment deficit from 10% at the start of 2010 to 6.3% by September.

The situation reveals an apparent contradiction whereby the internal economy is virtually stagnant and in clear recession while external demand is on the up.

The welcome figures were released at the end of last week by the National Statistics Institute (INE) which revealed that the economy had grown 1.4% in comparison to the same period last year.

Export growth rates of 6.3% in comparison with the previous quarter have never been registered since the INE began publishing comparable records in 1995.

But the growth in export commerce failed to make itself felt on both sides of the balance sheet as Portugal suffered a contraction in internal demand which resulted in weak imports which only managed to hover at around 0.6 per cent.

Overall, with reduced demand at home and increased demand abroad, the overall annual deficit in terms of GDP fell to 5.9% – one of the lowest levels registered by the INE since it began making comparative records.

However, investment in the national Portuguese economy is today lower than it was in 1996.

With regards to other sectors of the economy results continued to be weak with family private consumption falling 0.3 per cent – the first fall since the start of 2009.

The largest contraction was noted in expensive household appliances and long-lasting consumer goods which analysts believe will get worse with the increase in VAT to 23% in January.