Investors concerned over political instability in Portugal

Business analysts have voiced concerns over yesterday’s elections in Portugal saying a hung parliament, the prospect of the country’s State Budget for 2025 not being passed, and risks to Portugal’s Recovery and Resilience Programme all point to political instability and business uncertainty.

Ratings agency DBRS remarked on Monday morning that “the centre-right parties won the elections by a hair and could face significant obstacles to having a stable government”.

The ratings agency said that as well as the risk to public finances, the more tangible short-term risk could be a delay in the implementation of reforms and RRP investments in Portugal, since “the new government will not be able to get legislation approved, and this could heighten the risk of fresh elections at the end of 2023 or the beginning of 2024.”

The head of trading at Banco Carregosa, João Queiroz, told the business daily Negócios that the “only risks as far as the market was concerned would be to do with getting parties to sign off on the State Budget for 2025 and the application of EU Recovery and Resilience funds”.

DBRS said it believed that a coalition government led by Luís Montenegro “would continue to pursue a solid budgetary policy, as well as reducing the ratio of public debt over the next legislature, using any available budget to cut taxes.”

The Canadian agency currently has awarded an ‘A’ rating with a stable outlook for Portugal, but said it believed that the Chega party now had the possibility of acting as a ‘king-maker’ in the formation of a centre-right government – something both the AD and PS have ruled out.

Banco Carregosa’s João Queiroz told Negócios: “The market had already expected that the situation would be rather uncertain without a clear victory, rather like what happened in Spain”.

However, looking to the future, he said he did not believe that the votes that had yet to come in from the overseas diaspora would change the makeup of parliament, and therefore would not affect investor sentiment.