Portugal's recovery will remain on track in 2016, with domestic demand being the main driver of growth, mainly boosted by a fiscal stimulus by the government. However, fading tailwinds from the ECB QE programme and lower oil prices, stagnating external demand and the precarious condition of the banking sector will cap growth at just 1.7% in 2016, and 1.6% in 2017.
The victory of centre-right candidate Marcelo Rebelo de Sousa in Portugal's presidential election on January 24 will boost the country's political stability outlook. Presenting himself as a moderate consensus-builder, he will serve as a counterweight to the Socialist-led minority government in relation to its more radical supporters, the Left Bloc and the Communist Party.
Portuguese real GDP growth came in at 1.3% in Q415, taking the full-year outturn to 1.5%, equal to our estimate. Portugal's rebound from its three-year long recession in 2011-2013 will remain broadly in place in 2016, as reflected in our forecast for a 1.6% full-year expansion of real GDP growth. We retain our subdued growth outlook for the country and have not modified our forecasts for 2016.
Risks to Portugal's growth outlook stem from the possibility that there emerge disagreements between the ruling Socialist Party and the two radical left-wing parties that will support the Socialist-led minority government, i.e. the Left Bloc and the Socialist Party. If the two far left parties raise demands over a more radical policy trajectory for Portugal, for instance eurozone exit, this could have dramatically negative impact on the political stability outlook for the country and market perceptions of its sovereign risk profile.
|Real GDP growth, % y-o-y||0.9||1.5||1.7||1.6|
|Nominal GDP, EURbn||173.1||180.5||187.9||194.4|
|Consumer price inflation, % y-o-y, eop||-0.3||0.3||1.2||1.5|
|Exchange rate EUR/USD, eop||0.83||0.95||0.91||0.87|
|Budget balance, % of GDP||-4.5||-3.4||-3.2||-3.0|
|Current account balance, % of GDP||0.6||1.0||1.1||0.9|
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