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Portugal Says No to Pessimism When It Comes to Economic Forecasts

Socialist government predicts stronger growth than EU, IMF
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In Portugal, where pessimism has become a national characteristic, the Socialist government may be too optimistic about the economic outlook.

Finance Minister Mario Centeno predicts expansion of 1.8 percent this year and next and an acceleration to 2.1 percent in 2020 –- which would be the fastest in a decade. That makes the government an outlier, with a much rosier view compared with the European Commission, the International Monetary Fund and even the country’s own central bank.

 "More than being optimistic, the government’s forecasts can be seen as wishful thinking," said Filipe Garcia, an economist at Oporto-based financial consulting company IMF-Informacao de Mercados Financeiros SA. "It’s very unlikely that these forecasts will materialize." 

Portugal is counting on stronger growth and tight spending to help cut its budget deficit in half this year -- to 2.2 percent of GDP -- and then to 1.4 percent in 2017, even as it restores public workers’ pay that was cut during the country’s bailout period.

The optimism seems to contrast with the mood among the majority of the population in Portugal, where Fado, the national music genre, invariably takes the form of a sad lament about loss. A Eurobarometer poll published in December showed the Portuguese were the second most pessimistic in the euro region about their economy, after the Greeks.

The government’s forecasts were part of a long-term budget plan submitted to the European Commission, which offered a more downbeat assessment on Tuesday. In addition to slower growth, the EU body said that the risks are “tilted to the downside.”

Portugal’s ability to convince the EU and investors that it remains committed to fiscal discipline is crucial for market access. Graded "junk" at Fitch Ratings, Moody’s Investors Service and S&P Global Ratings, its only investment level rating is at DBRS Ltd., which last week warned of "significant challenges."

Hitting targets "will be the key factor in terms of convincing investors to buy Portuguese debt again," said Jose Maria Brandao de Brito, chief economist at Banco Comercial Portugues SA in Lisbon. "This is important for Portugal’s credibility."

Centeno’s euro-area counterparts have told Portugal to make plans for additional measures in case it runs into trouble meeting its targets. That’s advice he doesn’t want to hear. Last month, the minority administration, supported by the Communists and Left Bloc party, reiterated plans to turn the page on austerity by reinstating salaries to public workers.

The government maintained its position on Tuesday, saying it’s confident it will meet its budget targets. The new EU forecast "does not justify any modification of the established goals," it said.

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