The economic analysis unit from the rating agency Fitch foresees that the Socialist Party will have an upper hand against the Communist Party and the Left Block for the 2018 State Budget.
The poll numbers for the Socialist Party give the negotiating upper hand to the socialist Government, in comparison to their parliamentary peers, the Left Block (BE) and the Portuguese Communist Party (PCP). This is the analysis made by BMI Research economists in a press release disclosed this Wednesday. The economic unit from Fitch considers it would be harmful for BE and PCP if the government fell because of a budget dispute.
“While all of this is ramping up pressure on the Socialists, their strong position in the polls suggests that they have a much stronger negotiating hand than their government allies”, analysts state, mentioning that the 1st of October municipal elections could provide a “timely gauge of the solidity of support for the Socialists [PS]”.
Therefore, BMI Research expect the political stability in Portugal will remain “intact” through the negotiations process for the 2018 State Budget. The report also signals the short-term political risk score for Portugal increased, closer to the Euro Area average and surpassing the Government’s previous values. After its most unstable phase between November 2015 and November 2016, the current Executive is now in a less-risky stage, according to the BMI Research graph.
“The Socialist Party (PS)-led government (…) has defied most expectations of instability and weakness, and remains well-positioned to carry on governing through to the next elections“, states BMI Research, signaling the increase in polls from 32% in 2015 to 42% in July and August of 2017. Economists state this increase harmed both “the centre-right opposition (the Social Democratic Party, PSD, and CDS-People’s Party) as well as the Socialists’ governing partners”.
Their [PS] strong position in the polls suggests that they have a much stronger negotiating hand than their government allies.
The report acknowledges the “temptation” for the Government to call for early elections and earn more seats in Parliament, “since the economy cannot get much better“. In addition to anticipating no further GDP acceleration, Fitch’s unit speaks of some pressure points of the current government solution: the wildfires, dismissals, and strikes such as the one in Autoeuropa.
This Tuesday, Fitch’s unit gave a warning: employment will not give as much of a contribution to GDP as it has until now. Although they made an upwards revision of the 2017 and 2018 economic growth, BMI Research estimates the Portuguese GDP will decelerate if the country’s productivity does not start increasing.
For now, the Government is negotiating the 2018 State Budget along with the Portuguese Communist Party (PCP), the Greens (PEV) and the Left Block (BE), whose final document should be handed in on October 13. The Government’s parliamentary partners demand several measures for the return of income, namely by changing the IRS brackets. Appropriations are another instability factor for the Government, since the Left Block might join the Portuguese Socialist Party and cause some problems for Mário Centeno’s budgetary execution.