Portugal Sets Narrower 2016 Deficit Target, Sees Faster Growth

Portugal set a narrower target for its 2016 deficit and forecast faster economic growth in the Socialist government’s first budget proposal since taking office in November.

The budget deficit will be 2.6 percent of gross domestic product this year, narrower than a previous target of 2.8 percent and less than a 3 percent shortfall in 2015. The structural deficit will narrow by 0.2 percentage point to 1.1 percent in 2016, according to the budget plan.

“External demand will accelerate in 2016, sustained by the recovery of European economies,” the government said in a statement after a cabinet meeting. It sees economic growth of 2.1 percent in 2016, more than the European Commission’s Nov. 5 forecast for a 1.7 percent expansion.

Prime Minister Antonio Costa’s minority Socialist government plans to reverse state salary cuts and bolster family incomes, easing austerity measures faster than the previous administration proposed. Costa says he can do that and keep the budget deficit within the European Union limit of 3 percent of GDP through 2019.

“This is a responsible budget that favors economic growth and job creation,” Finance Minister Mario Centeno told reporters in Lisbon late on Thursday. Debt will decline 2.7 percentage points to 126 percent of GDP at the end of 2016.

The gradual removal of cuts to state workers’ wages will represent 446 million euros ($485 million). Costa’s government is also lowering the value-added tax rate at restaurants, increasing the minimum wage and reinstating four holidays as it reverses some measures introduced during a three-year bailout program that ended in 2014. It wants to regain control of airline TAP SGPS SA.

Costa says his minority administration will be propped up in parliament by the Left Bloc, Communists and Greens, which haven’t followed the Socialists in backing European Union budget rules in the past.

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