Portugal was a victim of the European Sovereign debt crisis which saw yields for its 10-year bonds spike at 17.3%, an utterly unsustainable value. Concerns about the solvency of Portuguese banks in the wake of the Global Financial Crisis sent yields on government bonds soaring and ultimately caused the country to accept an EU/IMF bailout in 2011 worth €78 billion. This required that Portugal enact an austerity program and embarked on a series of economic reforms under the supervision of the EU/IMF/ECB Troika. Under this guidance, Portugal has trimmed €11 billion of spending cuts through the austerity measures.
In May of last year, Portugal exited the bailout and the yields on its current 10-year bonds stand just 1.63%, it is 1.44% above German bond yields. Portugal has been a winner from the ECB’s putative Quantitative Easing programme which seeks to buy €60 billion worth of assets each month, thereby supressing yields for sovereign bonds. This has enabled Portugal to repay €14 billion to the IMF ahead of schedule.
At the height of the crisis, unemployment in Portugal peaked at 17.5% in January 2013; it has currently improved to stand at 13.5% which remains well above its historic average of 7.6% (from 1983 to 2014).
The full-year GDP figure for Portugal came in at 0.7% for 2015 on the back of three consecutive quarters of growth. This compares to an average full-year growth figure of 0.9% for the Eurozone as a whole. The budget deficit hit a peak of 10.2% in 2010, but had been pared back to 4.9% last year. The government hopes that growth will exceed its 2015 target of 1.5% and that the deficit will fall back to below the 3% of GDP figure allowed under the Euro convergence criteria. The same cannot be said of Portuguese national debt which currently stands at a record high of 129% of GDP – more than twice the level of 60% foreseen in the convergence criteria for the Euro.
The Portuguese go to the polls on 25th of May. In contrast with the situation in Greece, and to a lesser extent, and Spain, it is anticipated that anti-austerity parties will not play a serious role in the outcome. The majority of the electorate are predicted to support the two traditional mainstream parties although power is likely to pass from the ruling Social Democrats to the Socialist party.
