Portugal’s surprising stability is likely to persist

Subject

Portugal's economic and political situation.

Significance

The European Commission’s recommendation on May 22 to close the excessive deficit procedure opened against Portugal in 2009 constitutes a victory for the minority Socialist government of Antonio Costa. The Costa administration entered office under inauspicious circumstances in November 2015. It has since managed to corral a stable parliamentary majority with its left-wing allies while achieving budgetary consolidation and governing over an economic upturn.

Impacts

• Budgetary consolidation and positive macroeconomic indicators are underpinning a fall in the interest rate on Portuguese bonds.
• The good economic situation increases pressure on the government to revert to austerity at a faster pace next year.
• The main challenge for the government will be to ensure that budgetary consolidation continues.