Portugal’s Socialist Party-led minority government looks increasinglylikely to maintain power until the next election is due in 2019. Evenso, risks of instability remain high as the government walks a tightrope between fulfilling demands for fiscal prudence by its externalcreditors and demands for better workers’ rights and benefits bydomestic labour unions.
The large corporate and government debt loads and precarious creditmarket conditions will remain a major impediment to an accelerationof growth. In turn, fixed investment will remain weak on the back ofincreasing policy uncertainty and weak global demand.
The economy will become more reliant on external demand andinvestment and less on private consumption over the next decade,but the future will depend in large part on the government’s reformprogramme bearing fruit.
Major Forecast Changes
We have revised up our real GDP growth forecast for 2017 and 2018to 2.5% and 1.9%, from 2.3% and 1.2%, respectively.We revised up our 2017 average euro exchange rate forecast fromUSD1.10/EUR to USD1.13/EUR.