Portugal Rating Outlook Revised to Stable by Moody’s on Economy

Portugal’s government bond rating outlook was revised to stable from negative by Moody’s Investors Service amid an improving fiscal position and economic outlook.

The nation’s debt is rated Ba3, or three levels below investment grade by the New York-based credit ranking company. The general government debt ratio will start to decline from an elevated level of close to 129 percent of gross domestic product from 2014 onward, according to Moody’s statement today.

Portugal’s jobless rate dropped for a second quarter, falling to 15.6 percent in the three months through September as the country’s economy shows signs of recovery. The unemployment rate fell from 16.4 percent in the second quarter and from 15.8 percent in the third quarter of 2012, the Lisbon-based National Statistics Institute said yesterday on its website. That’s the lowest jobless rate since the second quarter of 2012.

While Portugal’s economy expanded in the second quarter for the first time since 2010 as export growth accelerated, Prime Minister Pedro Passos Coelho still has to trim spending by 3.2 billion euros ($4.3 billion) next year to meet budget deficit targets as the government tries to exit its European Union-led bailout program.

Yields on Portugal’s five-year bonds have dropped to 4.88 percent from a high for the year of 7.66 percent on July 12.

Next year’s spending cuts include 1.3 billion euros of savings in personnel costs as the government lowers wages and tries to reduce the number of state workers. Public sector workers in Portugal fell 4.7 percent in the 12 months through June, the Finance Ministry said on Oct. 31. About 10.7 percent of Portugal’s active population worked in the public sector as of June 2013.

Growth Forecasts

The government targets a budget deficit of 5.5 percent of gross domestic product for this year and 4 percent for 2014. It expects the shortfall will fall below the EU’s 3 percent limit in 2015, when it aims for a 2.5 percent gap. Portugal’s debt is forecast to peak at 127.8 percent of GDP this year.

The Portuguese government predicts the unemployment rate will climb to 17.4 percent in 2013 and 17.7 percent in 2014. On Oct. 3 it raised the 2014 growth forecast to 0.8 percent from 0.6 percent. It expects the economy will shrink 1.8 percent this year, less than its previous estimate of 2.3 percent.

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