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Portuguese Current Account Improves

James Boston
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Portuguese Current Account Improves

This morning’s Current Account Balance report out of Portugal represents the first surplus posted by the country in almost a year. The July figure just announced of €380.1M is a significant turnaround on the previous month’s deficit of -€187.9M, all expectations were for these latest readings to show the deficit widening to around -€250M.

Portugal has made significant progress in increasing it’s exports of goods and services since emerging from the EU/IMF bail out program in May of this year. The improving trade situation however needs to be viewed in the context of the very low base from which the Portuguese economy has come. The first half of 2014 proved to be a very challenging trade environment for the bail out economy as structural reforms aimed at productivity increases were hard fought. The first six months of 2014 saw Portugal record a trade deficit of almost five billion Euro, this represented a widening of 25% over the first half of 2103 where the trade deficit stood at four billion Euro. Recent month’s have seen export growth outpace that of imports contributing to reversal of the trade deficit.

The pick up in the balance of trade is obviously a significant contributing factor to current account moving back into the black, particularly as there is evidence of a weakening in domestic demand in the Portuguese economy. The latest Q2 GDP figures showed growth of 0.9%, although down a point on the first quarter’s reported 1.0% expansion the interesting aspect of the GDP figures is the mix of components driving the overall number. Domestic demand contributed 3.3% to the overall figure in the first quarter of the year, this however has significantly fallen off to a contribution of just 1.8% in the second quarter data. Falling domestic demand is never a good thing, fortunately trade picked up in time to make up for the shortfall, this however highlights the precarious nature of the Portuguese recovery.

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