A continued economic recovery and the Government's early repayment of IMF loans have allowed Portugal to distance itself further from beleaguered Greece.
But with debt still worryingly high and the recovery unlikely to gain much momentum, market concerns about Portugal could yet resurface.
Capital Economics notes ....
- On the face of it, things are going well in Portugal. But while developments are all encouraging, there are several reasons for caution. Private sector debt remains very high, particularly in the corporate sector. And with non-performing loans at 12.9% of the total and rising, it is not surprising that bank lending has continued to fall.
- The prospect of weak growth and low or negative inflation is likely to see public debt rise further, particularly if the Government backtracks on planned austerity ahead of this autumn's election.
- The ratio of gross debt to GDP was already 128% at the end of last year and we see it pushing 140% in 2016. There must be serious doubts about whether such a burden is sustainable even at current interest rates, let alone if rates start rising.
- If Greece either leaves the euro-zone or negotiates some kind of debt restructuring, there remains a risk that Portugal will follow.
