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Portugal Current Account Balance Falls Again

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Portugal’s Current Account Balance is showing a further slight deterioration in March to -€0.652Bn from the -€0.465Bn experienced in February. There is no market surprise element in these figures as the data relates to a period prior to the bailout exit. Portugal has recently left the €78Bn EU/IMF bail out program and economists will be watching keenly to see if it falters or whether it demonstrates the ability to manage the remainder of the recovery process on it’s own. In this respect the Current Account Balance data for the months of June onward will contain a lot more information around the prospects for the Portuguese economy.

Portugal’s public debt is set to peak at about 127% of Gross Domestic Product this year according to Government projections. Debt management is crucial to the country’s economic future, growing GDP will no doubt bring the key Debt/GDP measure back to a more comfortable level but the ability for the authorities to raise funds in the absence of an EU/IMF guarantee will be the real test.

The European Central Bank (ECB) has done Portugal, and other struggling periphery economies, a real favor here. Talk of the introduction of quantitative easing has brought investors flocking to the Eurozone sovereign bond markets, in turn ensuring that Government debt auctions are heavily subscribed to. Portugal and others are taking full advantage of this to refinance maturing bond issues at more favorable interest rates and also to stockpile a cash cushion while markets are amenable.

This window for debt finance raising however is likely to be short lived, the ECB has recently been experiencing pushback from German authorities in relation to their quantitative easing plans. The Bank has already backed off the planned introduction of quantitative easing next month in favor of an across the board interest rate cut.

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