Portuguese Economy Makes Progress in the First Quarter

Portugal’s economy expanded 0.4 percent compared to the last quarter, but analysts expected higher growth of 0.5 percent. Portugal owes its growth to higher domestic demand and exports. The government forecasts a growth rate of 1.6 percent for 2015.

Portugal’s economy expanded 0.4 percent compared to the last quarter, but analysts expected higher growth of 0.5 percent. Portugal owes its growth to higher domestic demand and exports. The government forecasts a growth rate of 1.6 percent for 2015.

The Portuguese economy accelerated at its fastest pace in two years. Portugal suffered a 1.4-percent contraction in the first quarter of 2014, but the troubled economy has undergone a steady annual growth rate of 1.4 percent in the first quarter of 2015. The nation is benefiting from such factors as low oil prices and a weak currency that bolsters exports, and lower interest rates provide a boost to the business sector. In fact, European Commission officials project a consistent recovery for the Portuguese economy in 2015, revising the budget deficit forecast to 3.1 percent, which is 1.0 percent lower than originally foretold.

Portugal May Need Further Spending Cuts

The International Monetary Fund, an organization that bailed out Portugal in 2011, says the Portuguese economy is improving but needs further gains. Lingering problems remain, such as the country’s high unemployment rate of around 14 percent, and the IMF urges Portugal to make the necessary structural reforms to improve wage growth and the pension system, while implementing spending reduction. However, more spending cuts are not something the public wants to hear, as many are weary of previous austerity measures, and politicians who are up for reelection later in the year hope to minimize any mention of such policies. The public may be tired of the IMF and austerity, but officials maintain that the loan package provided the necessary reserves to sustain the economy, and Portugal has paid off a portion of the loan while using a sound cost savings plan.

Portuguese Debt Burden

The banking system in Portugal has a host of problems, including defaulted loans that plague the economy. Portugal amassed a high amount of public and private debt that forced officials to accept a 78 billion euro loan package to satisfy lenders who stopped loaning money to the nation. This led to a weak investment streak, but more investors are becoming interested in Portugal again, thanks to such factors as a weak currency and a lucrative bond program. Finance minister Maria Luis Albuquerque stated that Portugal’s role in the financial markets is better than a year before. She also made mention of the European Central Bank’s QE policy, which provides the necessary investor confidence to fuel the markets. She further stated that the worst of Portugal’s woes are over, but only time will tell if the Portuguese can build from current gains and propel the economy forward.