Indecisive Portuguese elections to lead to lack of reform

A coalition between the Socialist Party and the Communist-Green alliance in Portugal is possible but its stability would not be certain. Alternatively, a minority government could also be formed. As a result, political uncertainty is likely to remain elevated after the election, leading to a lack of reform over the coming years.

Finally, the deadline to correct the excessive deficit procedure (2015) is set to be missed - all the more so after the recent significant upward revisions to the 2014 deficit ratio (from 4.5% to 7.2% of GDP due to the one-off banking sector recapitalisation cost).

The Portuguese general elections due to take place on 4th October should most likely see an opposition from the two traditional parties, the Socialist Party and the ruling right-wing coalition. Indeed, without the emergence of an alternative party, these two parties have been neck-and-neck in the polls during most of the campaign - though the ruling coalition managed to secure a small lead over the last few weeks. In any case, none of these two parties are likely to have enough seats for a full majority.