At a time when the government admits the country is entering a "new economic cycle", highlighting its capacity to grow above the EU's pace, Fitch forwards warnings on the country's performance.
Fitch expects the euro area’s economy to slow down until 2020. According to the rating agency’s estimates, in 2020, Portugal will present a slower growth than the average of the eurozone. This means that 2019 will be the last year in which the country will outperform its main commercial partners.
During a conference held in Lisbon this Thursday, Fitch upheld its projections for the Portuguese economy, estimating that GDP will grow by 1.8% this year, and 1.5% in 2020.
For 2019, the agency expects the Portuguese GDP to grow at a faster pace than the EA19 average (1.7%), but it warns there wll be a reversion of this trend in the year to come, as by then, the Portuguese economy will grow by 1.5% while EA19’s average GDP growth will grow by 1.6%.
This trend follows up on the overall slowdown of the global economic growth, with the agency noting that the “growth peak is certainly behind us”.
Fitch decided to keep the Portuguese rating two levels above “junk”, in November 2018. By then, the rating agency expected the Portuguese GDP to grow 2.2% in 2018, 1.8% in 2019 and 1.5% in 2020. Now, at the “Credit Outlook” conference, the agency decided to maintain the same overview.
The government included the GDP growth rate of 2.2% for 2018 in its State Budget 2019 proposal, but the economy Minister has already admitted the country is now entering a “new economic cycle”.
Until now there have been no signs that the current GDP growth rates would be reviewed, and the government should send an update on the Stability Pact by April this year. However, if Fitch’s estimates are correct, then the roles will indeed revert in 2020, with the Eurozone outgrowing Portugal (1.6% GDP growth against 1.5% for the Portuguese GDP).
Fitch is still planning to review the Portuguese rating by the 24th of May, two days before the European elections, and the agency expects that the Portuguese government will succeed in continuously lowering the deficit between 2018 and 2019, reaching a more stable ground in 2020.
Last year, Fitch estimated the deficit to stand at 0.7%, while for 2019 and 2020 it expects the country to reach a 0.5% deficit level.
On Fitch’s last rating update, there were no changes to these estimates.
Fitch also anticipates that the country will face budgetary constraints, given the low levels of public investment — “the levels of public investment are not sustainable” — and the expected increase in marginal interest rates for debt issuance.
Besides, the agency considers that as the country prepares to get to a 1.5% GDP growth rate, the economy of the country shall then return to the previous trends, of much weaker economic growth, as this level highly contrasts with 2017’s 2.8% GDP growth rate.