Government’s fall could impact economy
The scenario in which the Portuguese government falls and the State Budget for 2024 cannot be fully approved because parliament has been dissolved, could have a very real short-term negative effect on Portugal’s economy and investment perception overseas.
The Prime Minister’s resignation on Tuesday has come at a time when the Portuguese economy is cooling with a slowdown in exports and GDP down by 0.2% in Q3.
Portugal’s President Marcelo Rebelo de Sousa (pictured) now faces two choices: either invite the PS to appoint a new government; or dissolve parliament and call snap elections with the current government acting as a caretaker administration, perhaps under the leadership of the Minister of Finances, Fernando Medina with the PS party temporarily led by former Housing minister Pedro Nuno Santos.
However, the most likely course of action will be to dissolve parliament and call snap elections. Tomorrow (Thursday), the President will meet the leaders and representatives of the political parties and then address the nation with his decision.
Portugal’s State Budget 2024 has been approved overall, but has not yet been put to a final vote, which means that it is still a government proposal. If parliament is dissolved and the government falls, the Sate Budget will fall with it, including the tax cuts put forward by the government.
Short-term impacts could include a temporary mothballing in the execution of Brussels funds applied for Portugal’s Recovery and Resilience Programme, an effective and indirect increase in taxes due to salary increases, because tax reductions promised to families won’t now go through in the short term, and an increase in the possibility of a technical recession.
The Director of the Forum of Competitiveness Studies Office Pedro Braz Teixeira told the online news source ECO “with the fall of the government there is a greater likelihood of a technical recession … the economy will probably be harmed by the uncertainty. Decisions will be postponed, particularly investment decisions.”
Photo: RUI MINDERICO/LUSA
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