European Commission: Portugal to fail deficit targets

The latest European Commission forecasts announce more difficulties in meeting Troika deficit targets and could lead to more austerity measures.

Economy Indicators What's New — 11 May 2012 by Pedro Carreira Garcia
European Commission: Portugal to fail deficit targets

Portugal might fail to meet the 4.5% deficit target demanded by the so-called troika in exchange of a €78bn bailout, said the European Commission in its spring macroeconomic report released on Friday 11 May as the country is dealing with a deterioration of the economic conditions.

According to the recent economic forecasts from the EC, deficit should be at 4.7% in 2012, 0.2 percentual points above EC’s autumn forecast of 4.5% and of the target demanded by the international lenders to the country.

“The 2012 target for the general government deficit of 4.5% of GDP remains valid”, according to the EC, quoting the government’s commitment to comply strictly to the troika’s demands towards budget consolidation.

“However, downside risks to the fiscal projection related to the macro outlook are starting to materialise”, it said, “as is evidenced by the more pronounced fall in private consumption and the substantial worsening of the labour market situation”.

Hence, the EC said that “a tighter budgetary execution is foreseen”.

“For 2013, additional consolidation efforts of about 2% of GDP are included in the forecast”, EC said, “largely based on the deepening of previously implemented costcutting measures and a further broadening of tax bases.”

Portugal should contract 3.3% in 2012, unchanged from February’s interim forecast.

The country should return to dim growth in 2013. Portugal’s GDP is due to grow 0.3% next year due to good exports‘ performance and competitiveness boost due to lower wages.

The EC forecasts that exports, the main driver of Portugal’s economy, are due to decelerate to 2.5% in 2012 from a 7.5% growth in 2011, recovering 4.7% in 2013.

Meanwhile, unemployment should peak at 15.5% in 2012 and fall slightly to 15.1% the next year – substantially above the recent forecasts from the government of an unemployment rate of 14.5% in 2012 and 14.1% in 2013.

(Photograph: European Commission/All Rights Reserved)

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