S&P: Portugal credit rating stable

 In News

The US ratings agency Standard and Poor’s has maintained it BBB- rating despite praising Portugal’s progress.

The BBB- rating with stable outlook is below that of Moody’s credit rating for Portugal which was last set at Ba1 with positive outlook. Fitch’s credit rating was last reported at BBB with stable outlook.

On the positive side Portugal’s recovery is continuing with private consumption, investment, construction, exports and property all recovering well but showing signs of cooling. After economic expansion of 2.7% in 2017, the largest in 20 years, the economy has cooled to 2.3% and could shrink to 1.8% by 2021.

The ratings agency stressed that the employment market continues to strengthen with a 3.5% increase in employment and praised some of the reforms implemented by the last PSD government and thinks it unlikely that the current socialist PS government will dismantle them despite raising the minimum salary and restoring the 35-hour week in the public administration. Export increases too had been a positive driver for the economy as Portugal no longer lagged behind its regional partners. And despite more expenditure, the deficit was down to 1.4% in 2017 compared with 2% in 2016 with an outlook for 1.1% this year.

Portugal’s banking sector too was stronger with the Government helping to stabilize it in various ways, including the recapitalization of Caixa Geral de Depósitos, legislative reforms on insolvencies and restructurings, decrees changing the rules on participations in banks such as BPI and BCP as well as an extension on the maturity of the Government loan to the Resolution Fund. The agency also stated that US fund Lone Star had promised to restructure Novo Banco after purchasing the institution.

However, Portugal’s trade imbalance is one of the highest in Europe, over 250% of current account receipts in 2017 despite this ratio falling. Private debt too continues to weigh down the economy with resources that could otherwise be used for consumption or investment used instead to pay off company and family debts.