Portuguese consumer economy shows signs of improvement

THE PORTUGUESE consumer market has improved for the third month running, giving some grounds for hope of a moderate economic recovery.

According to monthly data, issued by the Bank of Portugal, the country’s GNP rose by 0.2 per cent in February (the highest value since May 2005) as against zero per cent in January.

The result allows the Bank of Portugal grounds for cautious optimism that the GNP will have registered a rise overall for the first quarter of 2006 that exceeds the growth figures for the entire second half of 2005.

In the third quarter of 2005, the economy showed a sharp fall caused by the effects of raising the IVA (Value Added Tax) to 21 per cent and the unveiling of the government’s austerity measures to balance the state budget. By the fourth quarter of 2005, the fall began to level off to a growth level of around 0.1 per cent.

With consumer and business confidence recovering slightly, indicators predict a moderate climb to 1.2 per cent in consumer confidence and -0.3 per cent for the economic climate as against -0.8 per cent in July and August 2005.

The Bank of Portugal figures reveal that the area where confidence is most likely to return is in the consumer market. The indicators for private consumption rose from one per cent to 1.2 per cent in February – the fourth consecutive rise.

The Portuguese National Statistics Institute agreed that private consumer confidence will have recovered moderately by the end of the first quarter in 2006.

On the other hand, investment has fallen. International commerce figures up to December 2005 showed that both imports and exports had fallen, reflecting fewer sales at home and less production for the foreign market.

Yet, despite interest rates and taxes being higher than they have been for many months, the quantity of credit being borrowed by companies and families is the highest since July 2004. Private loans for the first month of 2006 were 10.6 per cent higher than for the same period in 2005, while December 2005 was up 9.8 per cent on December 2004.

When it came to company borrowing, firms secured 5.5 per cent more loans in January 2006 than they did for the same period in 2005. Company borrowing is at its highest level for 19 months.