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Recession affects exports

By CHRIS GRAEME [email protected]

A fresh round of turbulence in the international financial markets could threaten Portugal’s lifeline – its exports.

The current market instability has been caused by the decision of one of the United State’s ratings agencies, Standard & Poors, to cut America’s AAA rating by one notch to AA+.

The resulting chaos on the stock markets around the world could worsen the recession and thereby affect Portugal’s exports – her only current glimmer of hope on the horizon.

Instability could also make it more difficult for the Government to consolidate its public finances and reduce the deficit and debt.

The other problem is that the current planned privatisation schemes agreed as part of the Troika plan could mean that public companies or public participation in private companies could sell for far less than their true value as millions are wiped off stocks and shares on the Lisbon Stock Market.

According to the OECD (Organisation for Economic Co-operation and Development), the unstable markets worldwide provoked by America and Europe’s sovereign debt crisis, is knocking economic confidence and with the world economy showing signs of slowing down again.

Despite last week’s hurricane on the markets, the decision over the weekend by the European Central Bank (ECB) to buy Spanish and Italian debt has initially been successful, reducing interest rate yields by 70-80 points.

In the case of Portugal, its yields actually fell 100 points, or one per cent, with interest rates on 10-year bonds falling back to 10%.

But some economists and analysts question the ECB’s capacity to continue buying up the sovereign debts of these countries.

At the same time, there have been the beginnings of market rumbles against France and Belgium and its sovereign debt.

Already the Belgian parliament has interrupted its holidays and returned to session to discuss its looming debt crisis and possible new austerity measures.

And the fall in the German stock market, Europe’s largest, is clearly over fears that the US economy, Germany’s largest market, is slowing down and facing a renewed recession.

In France, too, there are now fears that Europe’s second largest economy could soon lose its AAA status.

For a long time its public and large private companies have been unprofitable, its social system too large and expensive, its unions too strong and its labour legislation too inflexible.

In Portugal, for the fifth month running, indicators published by the OECD revealed the economy continuing to contract, with the economic outlook for the next six months remaining uncertain.

So far, the Portuguese finance minister Vitor Gaspar is refusing to make comments.

However, most economists accept that a contraction in the world economy fuelled by Europe and the United States debt problem will only add to Portugal’s problems, relying now as she does on exports.