Government cuts down on GDP estimate, down to 1.9%. Deficit still at 0.2%

The Portuguese government downwardly revised the growth of the economy for the country in 2019, from the 2.2% presented in the State Budget, dropping to 1.9%, as ECO reported last night. The deficit target should stand at 0.2%, despite the 0.3% drop in GDP growth.

Mário Centeno had already admitted that the growth of the economy could drop by two decimal points, and he was trying to prepare the Portuguese when interviewed by SIC, a Portuguese TV channel. “We expect that the impact will be low, as the Portuguese economy is performing much better this quarter than it was in the previous quarter, but I can’t commit to 2%, we can expect 2.1% or 1.9%”, he noted.

In the estimates for the Stability Programme, the government will present a downward revision of GDP growth, at 1.9%, leaving aside the more optimistic predictions it had previously announced. However, the government’s estimate is still the second most optimistic one, of all those which have been announced so far. The OECD expects a 2.1% GDP growth, while the Public Finances Council is more pessimistic, lowering its estimate to 1.6% for 2019.

The Portuguese central bank (BdP) has also reviewed negatively the growth of the GDP for 2019, expecting it to go up by 1.7% this year. Despite all these changes in the economic performance that are expected, the government is maintaining its deficit target at 0.2%.

But when last year’s results were known, with the deficit set at 0.5% – two-tenths lower than expected, a result which was once again better than expected – there was an expectation that the target could be revised as it had been a year ago in the Stability Programme. The Portuguese President, Marcelo Rebelo de Sousa, admitted the deficit might be nil this year.

But the deficit will be hindered by the slowdown in the economy (which is the basis for its calculation), by the drop in tax revenues resulting from that slowdown, and by certain budgetary issues such as the need to inject more capital into Novo Banco, something which is safeguarded by the bank’s sale agreement after BES’s resolution.

Weighing on the state Budget, as Mario Centeno explained, are the €400 million that are expected to go to Novo Banco, but the institution said that it would ask for almost €1,150 million to the Resolution Fund, after presenting losses of €1,412 million in 2018.

The finance minister has tried to separate the capital injections in the Novo Banco from the deficit, saying that it is a loan. Formally, Novo Banco requests the money from the Resolution Fund, which the banks are responsible for financing, but the lack of funds in this entity obliges the State to make this loan, which will be paid over several years.