Is the financial outlook for Portugal set to get better?

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We all know that we are in harsh economic times and the reality is that no country has escaped from the fallout of that. But signs are hopeful that the Portuguese economy is now showing signs of improving, even if they are only the first green shoots of recovery and not the final word on the subject.

This can be demonstrated in the facts that have come out in the wake of the draft budget proposal for 2013 which has been finalised this week by the Council of Ministers and that is due to go before the entire Parliament of Portugal next week.

Whilst this document is expected to contain a whole raft of measures that are related to cost cutting and austerity, there are some hopeful signs according to leading commentators about what the proposals are expected to contain.

Some of the measures that are expected to be in the draft document are increases in the personal tax rates for individuals and more job losses throughout the civil service, which is expected to lose as many 40,000 workers in the next year. These job losses are planned as far as possible to be for those who are more casually employed in government departments, rather than permanent members of staff, but nevertheless there are clearly many households who are going to feel the pinch at the measures as their leading breadwinners are lost to these cuts.

The real question then is why there is cause to be optimistic for the future of the Portuguese economy given these measures and their likely belt tightening effect on the economy.

The cause for optimism largely comes down to some predictions by some leading economic agencies about the future outlook for Portugal. In 2012 for example the Portuguese economy shrank by 3.7% according to figures from the IMF, but it is expected that in 2013 that figure will have improved to a shrinkage of 1 per cent. And while that may seem as though the country is still heading in the wrong direction, the fact is that is does at least show that the measures that are being taken are having an effect and that whilst it would be nice if the economy in Portugal were set to rise throughout next year, that it is nevertheless a good sign that dramatic falls in the GDP of Portugal seem to have been halted, and there are now only relatively modest falls.

There are of course still problems with the Portuguese economy that are tied up with both the bleak outlook in the broader economic community of Europe, and also with some of the structural considerations that Portuguese Banks in particular find themselves in. This is particularly related to the amount of assets that Portuguese Banks have liquidated in order to meet their commitments, and so there are still rumblings within government that at some stage the chickens will come home to roost on this issue, and that some measures will have to be taken to support the banks and make sure that they stay economically viable and sustainable for the long term.

This asset shrinkage across the whole of Europe is expected to be between $3.8 trillion and $4.5 trillion by the end of 2013, and so this is very far from being an issue that is confined to Portugal. In reality it crosses boundaries and can be seen right across the Eurozone countries. So it seems likely that at some stage a European wide solution will have to be sought if the problem is to be contained, and a second banking crisis avoided.

The good news for now though is that the OECD (Organisation for Economic Cooperation and Development) are forecasting that the recession in Portugal in 2013 will be less severe, and that moving forward they expect the economy to actually be in its most favourable place since Oct 2011. There are even some economic commentators who are predicting that Portugal will emerge from recession in the last quarter of 2013, and may even start to experience positive growth.

These optimistic notes have also been aided by increases in exports which the Office of National Statistics in Portugal estimated as having increased by 13.7%. It is interesting to note that this was fuelled by growth in exports to countries outside of the Eurozone primarily, and so it is heartening to note that Portugal is not alone in having signs of an uplift out of the economic gloom, and that some countries outside of Europe are in fact still growing at a comfortable pace.

In raw financial terms this meant that Portugal had an uplift of some 1.275 billion Euros as offset against the countries debt burden, and that in fact for goods and services Portugal now has a deficit of only sixteen million Euros in goods and services, which is actually a drop of 4.6 billion Euros on the previous year.

The country is now showing a trade deficit of just 279 million Euros for the first seven months of 2012 as compared to 7.624 billion euros for the first seven months of 2011. So there are definite signs of an upward trend in the economic lookout.

Overall, while Portugal is far from being out of the woods economically, there are signs that the financial outlook for Portugal is set to get better. - property in Portugal with Portugal's largest real estate agency - If you love Portugal you will love Portugal Property. Contact the team via email at: or call free now on +44 (0) 800 014 8201

Published in: Guide to Portugal / Money / Portugal Property / Taxation