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Portugal Current Account Balance Falls Back Into Negative Territory

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Statistics Portugal have just published the Current Account Balance figure for January. The negative balance of €0.185bn is marginally down on the December number of €0.88bn, the key is that although lower this number is remaining relatively stable. This time two years ago the Portuguese current account deficit was over €11bn.

Portugal is the latest of the periphery European economies preparing to exit its IMF/EU bail out. In two months time this 3 year program comes to an end and Portugal is deemed to have recovered sufficiently during that time to enable it leave the bailout program without the economic safety net of a precautionary credit line.

Markets are uncomfortable that Portugal has not been provided with this emergency credit facility but other European countries, Germany in particular, are reluctant to extend such an arrangement. The Troika are citing the successful emergence of Ireland from it’s bailout in the absence of a precautionary credit line as a precedent for Portugal going it alone.

The Portuguese economy still faces significant economic challenges, unemployment although down from a peak of over 17.5%, is still well into double figures and one of the highest in the Eurozone. The painful adjustments that the Portuguese workforce experienced on joining the Euro and again during the recent economic collapse have come with somewhat of a silver lining in the form of low wage demands. This gives Portugal a distinct advantage over it’s European neighbours in the shape of increased competitiveness, this is now manifesting itself in an export lead recovery.

Portugal still has a long way to go, the turnaround in the fortunes have however been very much in evidence since the middle of last year. GDP growth is finally back in the positive, recovering over the course of 9 months from a low of minus four percent to its current level of plus 1.7%.

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